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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D) (4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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RHONE-POULENC RORER INC.
(NAME OF SUBJECT COMPANY)
RHONE-POULENC RORER INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, WITHOUT PAR VALUE
(TITLE OF CLASS OF SECURITIES)
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76242T 10 4
(CUSIP NUMBER OF CLASS OF SECURITIES)
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RICHARD T. COLLIER, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
RHONE-POULENC RORER INC.
500 ARCOLA ROAD
COLLEGEVILLE, PENNSYLVANIA 19426
(610) 454-8000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATION ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPY TO:
MARGARET L. WOLFF, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Rhone-Poulenc Rorer Inc., a Pennsylvania
corporation (the "Company" or "RPR"). The address of the principal executive
offices of the Company is 500 Arcola Road, Collegeville, Pennsylvania 19426.
The title of the class of equity securities to which this statement relates is
the Common Stock, without par value, of the Company (the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to a tender offer by Rhone-Poulenc S.A., a French
societe anonyme ("Purchaser"), disclosed in a Tender Offer Statement on
Schedule 14D-1, dated August 22, 1997, to purchase all of the outstanding
shares (the "Shares") of Common Stock at a price of $97 per Share, net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated August 22, 1997 (the
"Offer to Purchase") and the related Letter of Transmittal (which, together
with all amendments or supplements thereto, collectively constitute the
"Offer"), copies of which are filed hereto as Exhibits (a) (1) and (a) (2),
respectively, and are incorporated herein by reference.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of August 19, 1997 (the "Merger Agreement"), among Purchaser, RP Vehicle
Inc., a Pennsylvania corporation and a wholly owned subsidiary of Purchaser
(the "Merger Subsidiary"), and the Company. The Merger Agreement provides
that, among other things, as soon as practicable following the completion of
the Offer, upon the terms and subject to the conditions (or the waiver of such
conditions, if permissible) contained in the Merger Agreement and in
accordance with the relevant provisions of the Pennsylvania Business
Corporation Law (the "PBCL"), the Merger Subsidiary will be merged with and
into the Company (the "Merger"), and the Company will be the surviving
corporation. At the effective time of the Merger, each Share then outstanding
(other than Shares owned directly or indirectly by Purchaser) will be
converted, subject to dissenters rights, into the right to receive $97 in cash
or any higher price per Share paid in the Offer. A copy of the Merger
Agreement is filed as Exhibit (c)(1) to this Schedule 14D-9 and is
incorporated herein by reference.
Purchaser currently beneficially owns 68.1% of the outstanding Shares. The
information set forth under the captions "INTRODUCTION", "SPECIAL FACTORS--
Background of the Offer", "SPECIAL FACTORS--Purpose and Structure of the Offer
and the Merger; Reasons of Purchaser for the Offer and the Merger", "THE
TENDER OFFER--Section 1. Terms of the Offer; Expiration Date" and "THE TENDER
OFFER--Section 8. Certain Information Concerning Purchaser and the Merger
Subsidiary" of the Offer to Purchase is incorporated herein by reference.
Concurrently with the filing of this Statement, Purchaser, Merger Subsidiary
and the Company are jointly filing with the Securities and Exchange Commission
a Transaction Statement on Schedule 13E-3, dated August 22, 1997.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
statement, is set forth in Item 1 above. All information contained in this
Statement or incorporated herein by reference concerning Purchaser, the Merger
Subsidiary or their respective officers, directors, representatives or
affiliates, or actions or events with respect to any of them, was provided by
Purchaser or the Merger Subsidiary, respectively, and the Company takes no
responsibility for such information.
<PAGE>
(b) The information contained under the captions "INTRODUCTION", "SPECIAL
FACTORS--Background of the Offer", "SPECIAL FACTORS--Recommendation of the
Company Board; Fairness of the Offer and the Merger", "SPECIAL FACTORS--The
Merger Agreement", "SPECIAL FACTORS--Interests of Certain Persons in the Offer
and the Merger", "SPECIAL FACTORS--Beneficial Ownership of Common Stock" and
"SPECIAL FACTORS--Related Party Transactions" of the Offer to Purchase is
incorporated herein by reference. Reference is hereby made to the information
contained under the captions "Directors' Compensation", "Report on Executive
Compensation by the Executive Personnel and Compensation Committee" and
"Compensation of Executive Officers" at pages 8 through 19 of the Company's
proxy statement relating to the annual meeting of the Company's shareholders
held on March 31, 1997, a copy of which is filed as Exhibit (c)(2) hereto and
incorporated herein by reference.
Indemnification Agreements. Effective July 2, 1997, the Company entered into
an indemnification agreement (the "Indemnification Agreement") with each of
the members of the Special Committee, pursuant to which the Company has agreed
to indemnify each such person in connection with his service on the special
committee of Independent Directors (as defined in the Acquisition Agreement,
dated as of March 12, 1990 between Purchaser and the Company) to the fullest
extent permitted by applicable law. A copy of the Indemnification Agreement if
filed as Exhibit (c)(3) to this Schedule 14D-9.
Indemnification of Directors. The Company is a Pennsylvania corporation.
Section 1741 of the PBCL permits the Company to indemnify each of its
directors and officers against expenses (including attorneys' fees) and,
except in proceedings by or in the right of the Company, against any
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with litigation or similar proceedings by
reason of serving in such capacities if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interest of the Company, and, with respect to criminal actions or proceedings,
had no reasonable cause to believe that his or her conduct was illegal.
Section 1741 of the PBCL provides that a corporation may indemnify any person
who was or is, or is threatened to be made, a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
The indemnity may include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the
indemnified person in connection with such action, suit or proceeding,
provided such officer, director, employee or agent acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the
corporation's best interest and, with respect to any criminal action or
proceedings, had no reasonable cause to believe that his or her conduct was
unlawful.
Section 513 of the PBCL enables a corporation in its bylaws to eliminate or
limit the personal liability of an officer or director to the corporation or
its shareholders by violations of the director's fiduciary duty, except (i)
for any breach of the director's duty of loyalty to the corporation or its
shareholders, and (ii) the breach or failure to perform constitutes self-
dealing or willful misconduct or recklessness. Section 513 shall not apply to
(i) the reasonability or liability of a director pursuant to any criminal
statute; or (ii) the liability of a director for payment of taxes pursuant to
State or local law.
Article Sixth of the Amended and Restated Articles of Incorporation of the
Company provides that a director and officer of the Company shall not be
personally liable as such for monetary damages (including, without limitation,
any judgment, amount paid in settlement, penalty, punitive damages, or
expenses of any nature (including without limitation, attorneys' fees and
disbursements)) for any action taken, or any failure to take any action,
unless the director has breached or failed to perform the duties of his or her
office under the Amended and Restated Articles of Incorporation or the Bylaws
of the Company or applicable provisions of the law and the breach or failure
to perform constitutes self-dealing, willful misconduct or recklessness. A
copy of Article Sixth of the Amended and Restated Articles of Incorporation of
the Company is filed as Exhibit (c)(4) and is incorporated herein by
reference.
2
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Article Seventh of the Bylaws of the Company generally provides that
directors and officers will be indemnified to the fullest extent permissible
under the PBCL against all costs, expenses, damages, judgments, penalties,
punitive damages, excise taxes assessed with respect to an employee benefit
plan, fines and amounts paid in settlement incurred in any proceeding (whether
or not such proceeding was by or in the right of the Company) in which they
were a party because of their position as a director or officer of the Company
or because they served at the request of the Company as a director, officer,
employee, agent, fiduciary or trustee of another corporation or entity. The
Bylaws of the Company also provide for the advancement of litigation expenses
at the request of a director or officer provided that such director undertakes
to repay the amount advanced if it is ultimately determined that such director
is not entitled to indemnification for such expenses. Where the director or
officer initiated the action or participated as an intervener or amicus
curiae, the Company is not required to indemnify unless the initiation or
participation has been approved by the Board of Directors of the Board. In
addition, the Company is not required to indemnify a director or officer with
respect to any proceeding in which a court determines that the conduct of the
director or officer constituted willful misconduct or recklessness within the
meaning of certain provisions of the PBCL sufficient to bar indemnification,
was based upon or attributable to the receipt of a personal benefit to which
the director or officer was not legally entitled, or was finally adjudicated
in a prescribed arbitration proceeding to be otherwise unlawful. However,
directors and officers are entitled to commence a prescribed arbitration
proceeding against the Company for failure to make a requested indemnification
payment and the Company has the burden of proving such indemnification to be
improper. Article Seventh of the Company's Bylaws is filed as Exhibit (c)(5)
and is incorporated herein by reference.
The Merger Agreement contains certain provisions regarding the
indemnification and insurance of directors described under the heading
"SPECIAL FACTORS--The Merger Agreement--Agreements of Purchaser, the Merger
Subsidiary and the Company."
Except as described herein or incorporated herein by reference, there are no
contracts, agreements, arrangements or understandings or any actual or
potential conflicts of interest between the Company or its affiliates and (1)
the Company, its executive officers, directors or affiliates, or (2) Purchaser
or the Merger Subsidiary or any of their respective executive officers,
directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) On August 19, 1997 the Company Board, by a unanimous vote of all
directors present and voting, based upon, among other things, the unanimous
recommendation and approval of the Special Committee, determined that the
Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, upon the terms and subject to the conditions set forth
in the Merger Agreement are fair to, and in the best interests of, the Company
and approved the Offer, the Merger and the Merger Agreement.
A copy of a letter to all shareholders of the Company communicating the
recommendations of the Board of Directors is filed as Exhibit (a)(3) and is
incorporated herein by reference.
(b) The reasons for the recommendation stated in paragraph (a) of this Item
4 are set forth under the captions "INTRODUCTION", "SPECIAL FACTORS--
Background of the Offer", "SPECIAL FACTORS--Recommendation of the Company
Board; Fairness of the Offer and the Merger" and "SPECIAL FACTORS--Opinion of
Goldman, Sachs & Co." of the Offer to Purchase and are incorporated herein by
reference.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The information contained under the captions "SPECIAL FACTORS--Background of
the Offer", "SPECIAL FACTORS--Recommendation of the Company Board; Fairness of
the Offer and the Merger", "SPECIAL FACTORS--Opinion of Goldman, Sachs & Co."
and "SPECIAL FACTORS--Interests of Certain Persons in the Offer and the
Merger" of the Offer to Purchase is incorporated herein by reference.
3
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Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to shareholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) The information contained under the caption "SPECIAL FACTORS--Interest
of Certain Persons in the Offer and the Merger" of the Offer to Purchase is
incorporated herein by reference. Except as set forth in the previous
sentence, during the past 60 days, no transactions in the Shares have been
effected by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.
(b) The information contained under the captions "INTRODUCTION", "SPECIAL
FACTORS--Background of the Offer", "SPECIAL FACTORS--Purpose and Structure of
the Offer and the Merger; Reasons of Purchaser for the Offer and the Merger",
"SPECIAL FACTORS--Plans for the Company after the Offer and the Merger;
Certain Effects of the Offer", "SPECIAL FACTORS--Interests of Certain Persons
in the Offer and the Merger", "THE TENDER OFFER--Section 11. Effect of the
Offer on the Market for the Shares; the NYSE, the Paris Bourse and Exchange
Act Registration" of the Offer to Purchase is incorporated herein by
reference.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as described in this Schedule 14D-9, or as set forth in the Offer
to Purchase, to the best of the Company's knowledge, no negotiation is being
undertaken or is under way by the Company in response to the Offer which
relates to or would result in: (i) an extraordinary transaction, such as a
merger or reorganization, involving the Company or any subsidiary of the
Company, (ii) a purchase, sale or transfer of a material amount of assets by
the Company or any subsidiary of the Company, (iii) a tender offer for or
other acquisition of securities by or of the Company or (iv) any material
change in the present capitalization or dividend policy of the Company.
(b) None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The information contained under the captions "SPECIAL FACTORS--Background of
the Offer" and "THE TENDER OFFER--Section 13. Certain Legal Matters and
Regulatory Approvals" of the Offer to Purchase is incorporated herein by
reference. Reference is hereby made to the Offer to Purchase and the related
Letter of Transmittal which are attached as Exhibits (a)(1) and (a)(2),
respectively, and are incorporated herein by reference in their entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT NO.
(a)(1) Offer to Purchase.*+
(a)(2) Letter of Transmittal.*+
(a)(3) Letter to Company shareholders.*+
(a)(4) Opinion of Goldman, Sachs & Co., dated August 19, 1997 (incorporated by
reference to Schedule II to Purchaser's Tender Offer Statement on
Schedule 14D-1, dated August 22, 1997).*
(a)(5) Notice of Guaranteed Delivery (incorporated by reference to Exhibit
(a)(3) to Purchaser's Tender Offer Statement on Schedule 14D-1, dated
August 22, 1997).
(a)(6) Letter from Morgan Stanley & Co. Incorporated and UBS Securities LLC to
Brokers, Dealers, Commercial Banks, Trust Companies and Nominees
(incorporated by reference to Exhibit (a)(4) to Purchaser's Tender
Offer Statement on Schedule 14D-1, dated August 22, 1997).
(a)(7) Letter from Brokers, Dealers, Commercial Banks, Trust Companies and
Nominees to Clients (incorporated by reference to Exhibit (a)(5) to
Purchaser's Tender Offer Statement on Schedule 14D-1, dated August 22,
1997).
(a)(8) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (incorporated by reference to Exhibit (a)(6) to
Purchaser's Tender Offer Statement on Schedule 14D-1, dated August 22,
1997).
4
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(a)(9) Summary Advertisement as published in The Wall Street Journal on August
22, 1997 (incorporated by reference to Exhibit (a)(7) to Purchaser's
Tender Offer Statement on Schedule 14D-1, dated August 22, 1997).
(a)(10) Press Release issued by Purchaser on August 20, 1997 (incorporated by
reference to Exhibit (a)(8) to Purchaser's Tender Offer Statement on
Schedule 14D-1, dated August 22, 1997).
(a)(11) Press Release issued by the Company on August 20, 1997.+
(a)(12) English translation of French-language Communique published in Les
Echos and La Tribune on August 22, 1997 (incorporated by reference to
Exhibit (a)(9) to Purchaser's Tender Offer Statement on Schedule 14D-
1, dated August 22, 1997).
(c)(1) Agreement and Plan of Merger dated as of August 19, 1997, among
Purchaser, the Merger Subsidiary and the Company (incorporated by
reference to Exhibit (c)(3) to Purchaser's Tender Offer Statement on
Schedule 14D-1, dated August 22, 1997).
(c)(2) Pages 8-19 of the Proxy Statement dated March 31, 1997, relating to the
Company's 1997 Annual Meeting of Shareholders.+
(c)(3) Indemnification Agreement, dated July 2, 1997, between the Company and
each of James S. Riepe, Dale F. Frey and Eric J. Topol, M.D.+
(c)(4) Article Sixth of the Amended and Restated Articles of Incorporation
(incorporated by reference to Exhibit 3(b) to the Annual Report on Form
10-K for the fiscal year ended December 31, 1996).
(c)(5) Article Seventh of the Company's Bylaws (incorporated by reference to
Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
(c)(6) Amended and Restated Stock Plan, dated March 12, 1990 (incorporated by
reference to Exhibit 10(o) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
(c)(7) Equity Compensation Plan, dated March 11, 1990 (incorporated herein by
reference to Exhibit 10(p) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
(c)(8) 1995 Equity Compensation Plan, dated March 21, 1995 (incorporated by
reference to Exhibit 10(q) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
(c)(9) Acquisition Agreement, dated as of March 12, 1990, between the Company
and Purchaser (incorporated by reference to Exhibit 1 to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, dated March
16, 1990).
(c)(10) Complaint filed in Brickell v. Rhone-Poulenc S.A. (Supreme Court of
the State of New York, County of New York, filed July 9, 1997)
(incorporated by reference to Exhibit (g)(1) to Purchaser's Tender
Offer Statement on Schedule 14D-1, dated August 22, 1997).
(c)(11) Complaint filed in Steiner v. Rhone-Poulenc S.A. (United States
District Court for the Eastern District of Pennsylvania, filed July
15, 1997) (incorporated by reference to Exhibit (g)(2) to Purchaser's
Tender Offer Statement on Schedule 14D-1, dated August 22, 1997).
(c)(12) Complaint filed in Krim v. Rhone-Poulenc S.A. et. al. (New Jersey
Superior Court, Mercer County, filed July 15, 1997) (incorporated by
reference to Exhibit (g)(3) to Purchaser's Tender Offer Statement on
Schedule 14D-1, dated August 22, 1997).
(c)(13) Complaint filed in Simon v. Robert E. Cawthorn et. al. (Pennsylvania
Court of Common Pleas, Trial Division, Montgomery County, filed July
31, 1997) (incorporated by reference to Exhibit (g)(4) to Purchaser's
Tender Offer Statement on Schedule 14D-1, dated August 22, 1997).
(c)(14) Motion to Dismiss Complaint filed in Brickell v. Rhone-Poulenc S.A.
(Supreme Court of the State of New York, County of New York, filed
August 11, 1997) (incorporated by reference to Exhibit (g)(5) to
Purchaser's Tender Offer Statement on Schedule 14D-1, dated August 22,
1997).
(c)(15) Motion to Dismiss Complaint filed in Steiner v. Rhone-Poulenc S.A.
(United States District Court for the Eastern District of
Pennsylvania, filed August 6, 1997) (incorporated by reference to
Exhibit (g)(6) to Purchaser's Tender Offer Statement on Schedule 14D-
1, dated August 22, 1997).
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* Included in documents mailed to shareholders.
+ Filed herewith.
5
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Rhone-Poulenc Rorer Inc.
By: /s/ Michel de Rosen
Name: Michel de Rosen
Title:Chairman and Chief
Executive Officer
Dated: August 22, 1997
6
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Exhibit (a)(1)
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Rhone-Poulenc Rorer Inc.
at
$97 Net Per Share
by
Rhone-Poulenc S.A.
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THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED.
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THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER SUCH
NUMBER OF THE THEN ISSUED AND OUTSTANDING SHARES OF COMMON STOCK,
WITHOUT PAR VALUE PER SHARE (THE "SHARES") OF RHONE-POULENC RORER INC.
(THE "COMPANY"), OTHER THAN SHARES (THE "PURCHASER SHARES") OWNED BY
RHONE-POULENC S.A. ("PURCHASER"), WHICH, WHEN TAKEN TOGETHER WITH
THE PURCHASER SHARES, CONSTITUTES AT LEAST 90% OF THE THEN
ISSUED AND OUTSTANDING SHARES (THE "MINIMUM CONDITION"). SEE
"THE TENDER OFFER--SECTION 12. CERTAIN CONDITIONS TO THE
OFFER".
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THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT AND VOTING, BASED UPON, AMONG OTHER THINGS, THE UNANIMOUS
RECOMMENDATION AND APPROVAL OF A COMMITTEE OF THE BOARD OF DIRECTORS
COMPRISED OF THE INDEPENDENT DIRECTORS (AS DEFINED HEREIN), HAS
DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED
HEREIN) IS FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY,
AND RECOMMENDS THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER
THEIR SHARES PURSUANT TO THE OFFER.
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IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares in the United States should either (1) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in
the Letter of Transmittal and mail or deliver it together with the
certificate(s) evidencing tendered Shares, and any other required documents,
to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") (at the
Depositary's address set forth on the back cover of this Offer to Purchase) or
tender such Shares pursuant to the procedure for book-entry transfer set forth
in "THE TENDER OFFER--Section 3. Procedures for Accepting the Offer and
Tendering Shares" or (2) request such shareholder's broker, dealer, commercial
bank, trust company or other nominee to effect the transaction for such
shareholder.
Any shareholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available, or who cannot comply
with the procedure for book-entry transfer on a timely basis, may tender such
Shares by following the procedure for guaranteed delivery set forth in "THE
TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering
Shares".
Questions or requests for assistance may be directed to Georgeson & Company
Inc. (the "Information Agent"), Morgan Stanley & Co. Incorporated (the "Dealer
Manager") or UBS Securities LLC (the "Co-Dealer Manager") at their respective
addresses and telephone numbers set forth on the back cover of this Offer to
Purchase. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent or from brokers, dealers, commercial banks or trust
companies.
---------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
---------------
The Dealer Managers for the Offer are:
MORGAN STANLEY DEAN WITTER UBS SECURITIES
August 22, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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INTRODUCTION.......................................................................... 1
Note to Holders of Shares Desiring to Tender in the United States................... 3
Note to Holders of Shares in France................................................. 3
Note aux Actionnaires en France..................................................... 3
SPECIAL FACTORS....................................................................... 5
Background of the Offer............................................................. 5
Recommendation of the Company Board; Fairness of the Offer and the Merger........... 10
Recommendation of the Special Committee and the Company Board..................... 10
Fairness of the Offer and the Merger.............................................. 10
Opinion of Goldman, Sachs & Co. .................................................... 12
Company Budget Information and Financial Projections................................ 17
Cautionary Statement Concerning Forward-Looking Statements.......................... 19
Position of Purchaser Regarding Fairness of the Offer and the Merger................ 19
Purpose and Structure of the Offer and the Merger; Reasons of Purchaser for the
Offer and the Merger............................................................. 20
Plans for the Company After the Offer and the Merger; Certain Effects of the Offer.. 21
Rights of Shareholders in the Offer and the Merger.................................. 21
Filing Notice of Intention to Demand Fair Value..................................... 22
Record Owners and Beneficial Owners................................................. 22
Notice to Demand Payment............................................................ 22
Payment of Fair Value of Shares..................................................... 23
Estimate by Dissenter of Fair Value of Shares....................................... 23
Valuation Proceedings............................................................... 23
Costs and Expenses of Valuation Proceedings......................................... 23
Other............................................................................... 24
The Merger Agreement................................................................ 24
Interests of Certain Persons in the Offer and the Merger............................ 28
Beneficial Ownership of Common Stock................................................ 29
Related Party Transactions.......................................................... 31
</TABLE>
<TABLE>
<C> <S> <C>
THE TENDER OFFER.......................................................... 33
1. Terms of the Offer; Expiration Date............................... 33
2. Acceptance for Payment and Payment for Shares..................... 34
3. Procedures for Accepting the Offer and Tendering Shares........... 35
4. Withdrawal Rights................................................. 37
5. Certain U.S. Federal and French Income Tax Consequences........... 38
6. Price Range of Shares; Dividends.................................. 39
7. Certain Information Concerning the Company........................ 39
8. Certain Information Concerning Purchaser and the Merger
Subsidiary....................................................... 42
9. Financing of the Offer and the Merger............................. 43
10. Dividends and Distributions....................................... 44
11. Effect of the Offer on the Market for the Shares; the NYSE, the
Paris Bourse and Exchange Act Registration....................... 44
12. Certain Conditions of the Offer................................... 45
13. Certain Legal Matters and Regulatory Approvals.................... 46
14. Fees and Expenses................................................. 49
15. Miscellaneous..................................................... 50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
SCHEDULE I. Directors and Executive Officers of Purchaser and the
Merger Subsidiary....................................... I-1
SCHEDULE II. Opinion of Goldman, Sachs & Co........................... II-1
SCHEDULE III. Sections 1930(a) and 1571-80 (Subchapter of Chapter 15)
of the Pennsylvania Business Corporation Law............ III-1
SCHEDULE IV. Audited Financial Statements (and Related Notes) for the
Company for the Years Ended December 31, 1995 and
December 31, 1996....................................... IV-1
SCHEDULE V. Unaudited Financial Statements (and Related Notes) for
the Company for the Three-Month and Six-Month Periods
Ended June 30, 1997..................................... V-1
SCHEDULE VI. Summary Financial Statements for Purchaser for the Years
Ended December 31, 1995 and December 31, 1996........... VI-1
</TABLE>
<PAGE>
To the Holders of Common Stock of
Rhone-Poulenc Rorer Inc.
INTRODUCTION
Rhone-Poulenc S.A., a societe anonyme organized under the laws of the
Republic of France ("Purchaser"), hereby offers to purchase all issued and
outstanding shares (the "Shares") of common stock, without par value per share
(the "Common Stock"), of Rhone-Poulenc Rorer Inc., a Pennsylvania corporation
(the "Company"), at a price of $97 per Share, net to the seller in cash, upon
the terms and subject to the conditions set forth in this Offer to Purchase
and in the related Letter of Transmittal (which together constitute the
"Offer"). Tendering shareholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in Instruction 6 of the Letter
of Transmittal, stock transfer taxes with respect to the purchase of Shares by
Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses
of Morgan Stanley & Co. Incorporated ("Morgan Stanley") and UBS Securities LLC
("UBS"), which are acting as the Dealer Manager and the Co-Dealer Manager,
respectively, for the Offer (together, in such capacities, the "Dealer
Managers"), ChaseMellon Shareholder Services, L.L.C. (the "Depositary"),
Societe Generale (the "French Depositary") and Georgeson & Company Inc. (the
"Information Agent") incurred in connection with the Offer. See "THE TENDER
OFFER--Section 14. Fees and Expenses".
Purchaser currently owns 97,163,370 Shares (the "Purchaser Shares"),
constituting approximately 68.1% of the currently issued and outstanding
Shares. The purpose of the Offer is to facilitate the acquisition of all of
the remaining Shares for cash and thereby enable Purchaser to acquire 100% of
the Common Stock of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), BY UNANIMOUS
VOTE OF ALL DIRECTORS PRESENT AND VOTING, BASED UPON, AMONG OTHER THINGS, THE
UNANIMOUS RECOMMENDATION AND APPROVAL OF A COMMITTEE OF THE BOARD OF DIRECTORS
(THE "SPECIAL COMMITTEE") COMPRISED OF INDEPENDENT DIRECTORS (AS DEFINED
HEREIN) HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO, AND
IN THE BEST INTERESTS OF, THE COMPANY AND RECOMMENDS THAT SHAREHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Company has advised Purchaser that Goldman, Sachs & Co. ("Goldman
Sachs") has delivered to the Board its written opinion that the $97 per Share
in cash to be received by the shareholders of the Company other than Purchaser
and its subsidiaries in the Offer and the Merger (as defined below) is fair to
such holders. See "SPECIAL FACTORS--Opinion of Goldman, Sachs & Co." for
further information concerning the opinion of Goldman Sachs.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which is being mailed to shareholders herewith.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER SUCH NUMBER OF
THE THEN ISSUED AND OUTSTANDING SHARES, OTHER THAN THE PURCHASER SHARES,
WHICH, WHEN TAKEN TOGETHER WITH THE PURCHASER SHARES, CONSTITUTES AT LEAST 90%
OF THE THEN ISSUED AND OUTSTANDING SHARES (THE "MINIMUM CONDITION"). SEE "THE
TENDER OFFER--SECTION 12. CERTAIN CONDITIONS TO THE OFFER", WHICH SETS FORTH
IN FULL THE CONDITIONS TO THE OFFER.
The Company has advised Purchaser that, as of July 31, 1997, there were
142,687,492 Shares (including 5,169,412 Shares held by the Company's Employee
Benefits Trust) issued and outstanding and 10,410 Shares
<PAGE>
held in the treasury of the Company. Employee stock options ("Employee
Options") exercisable for 6,723,603 Shares were outstanding pursuant to the
Company's stock option plan as of July 31, 1997, 4,439,111 of which were
vested as of July 31, 1997. As of July 31, 1997, 1,750 shares of Money Market
Preferred Stock, without par value (liquidation preference $100,000 per share)
of the Company were issued and outstanding. According to Company's records, as
of August 13, 1997, there were approximately 7,054 holders of record of the
issued and outstanding Shares. Purchaser beneficially owns 97,163,370 Shares,
91,669,462 of which were acquired in two transactions completed in July 1990
(taking into account a two-for-one split of the Shares that was effected on
June 7, 1991) and the remainder of which were acquired in subsequent open
market and privately negotiated transactions (see "SPECIAL FACTORS--Background
of the Offer"). Assuming all such vested Employee Options are exercised, the
Minimum Condition would be satisfied if 35,250,573 Shares were validly
tendered in the Offer and not withdrawn.
On March 12, 1990, the Company and Purchaser entered into an Acquisition
Agreement (the "Acquisition Agreement") pursuant to which the Purchaser
acquired approximately 68.68% of the outstanding Shares. Approximately 50.1%
of such Shares were acquired in a cash tender offer at a price which
represented a premium of approximately 58.4% to the pre-announcement price of
the Shares, with the remaining Shares acquired in consideration for the
contribution to the Company of Purchaser's human pharmaceutical business and
certain other consideration.
The Acquisition Agreement prohibited the Purchaser from owning more than
68.68% of the issued and outstanding Shares prior to July 31, 1997. At any
time after July 31, 1997, Purchaser is permitted to increase its ownership of
Shares above 75% of the issued and outstanding Shares, but only pursuant to a
Qualifying Tender Offer (as defined below). As discussed more fully below,
except with respect to the minimum offering period being reduced from 30
business days to 28 business days with the agreement of the Special Committee,
the Offer is a Qualifying Tender Offer under the Acquisition Agreement. The
Minimum Condition satisfies one of the requirements for a Qualifying Tender
Offer, and ensures that in order for the Offer to be successful, approximately
two-thirds of the Shares not owned by Purchaser must be tendered into the
Offer.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 19, 1997 (the "Merger Agreement"), among Purchaser, RP Vehicle,
Inc., a Pennsylvania corporation specifically organized for the purpose of
effecting the Merger and a direct, wholly owned subsidiary of Purchaser (the
"Merger Subsidiary"), and the Company. The Merger Agreement provides that,
among other things, as soon as practicable after the purchase of Shares
pursuant to the Offer and the satisfaction of the other conditions set forth
in the Merger Agreement, in accordance with the requirements of a Qualifying
Tender Offer and the relevant provisions of the Pennsylvania Business
Corporation Law of 1988 ("PBCL"), the Merger Subsidiary will be merged with
and into the Company (the "Merger"), with the Company as the surviving
corporation. At the effective time of the Merger (the "Effective Time"), each
Share issued and outstanding immediately prior to the Effective Time held by
shareholders other than Purchaser or any direct or indirect subsidiary of
Purchaser shall be cancelled and shall be converted automatically into the
right to receive $97 in cash, or any higher price that may be paid per Share
pursuant to the Offer, without interest (the "Merger Consideration"), subject
to dissenters rights. Shares held in the treasury of the Company or owned by
Purchaser or any direct or indirect wholly owned subsidiary of Purchaser or
the Company will remain issued and outstanding. The Merger Agreement is more
fully described in "SPECIAL FACTORS--The Merger Agreement". Shareholders who
fully comply with the statutory dissenters procedures set forth in the PBCL,
the relevant portions of which are attached to this Offer to Purchase as
Schedule III, will be entitled to receive, in connection with the Merger, cash
for the fair value of their Shares as determined pursuant to the procedures
prescribed by the PBCL. NO DISSENTERS RIGHTS ARE AVAILABLE IN CONNECTION WITH
THE OFFER. SEE "SPECIAL FACTORS--RIGHTS OF SHAREHOLDERS IN THE MERGER".
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger
Agreement by the requisite vote of the shareholders of the Company. See
"SPECIAL FACTORS--The Merger Agreement". Under the Company's Articles of
Incorporation and the PBCL, the affirmative vote of a majority of the
outstanding Shares is required to approve and adopt the Merger Agreement and
the Merger. Consequently, Purchaser currently has sufficient voting power to
approve and adopt the Merger Agreement and the Merger without the vote of any
other shareholder.
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<PAGE>
NOTE TO HOLDERS OF SHARES DESIRING TO TENDER IN THE UNITED STATES
This Offer to Purchase and the accompanying documents contain information
required to be disclosed by the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the "Exchange Act"),
including financial information regarding the Company and Purchaser, a
description of the terms, conditions and background of the Offer, and the
procedures for tendering Shares for purchase.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY
DECISION IS MADE WITH RESPECT TO THE OFFER.
NOTE TO HOLDERS OF SHARES IN FRANCE
Any holder of Shares through SICOVAM, the French clearing system, desiring
to tender its Shares in France should refer to the Communique dated as of the
date hereof, published in the August 22, 1997 issues of Les Echos and La
Tribune and the avis published by the Societe des Bourses Francaises on August
22, 1997. Copies of the Communique, as well as the Offer to Purchase and
accompanying documents, are available at the offices of: Rhone-Poulenc S.A.,
25, quai Paul Doumer, 92408 Courbevoie Cedex, France; Morgan Stanley S.A., 25,
rue Balzac, 75008 Paris, France; Union de Banques Suisses S.A., 69 Boulevard
Haussmann, 75008 Paris, France; or the French depositary, Societe Generale,
Tour Societe Generale, 17, Cours Valmy, 92972 Paris-La Defense, France. These
documents can also be obtained, free of charge, from the institution holding
each shareholder's Shares in France. An English translation of the Communique
is also being filed with this Offer and is available through the Commission.
U.S. HOLDERS ARE EXCLUDED FROM TENDERING THEIR SHARES IN FRANCE. ALL HOLDERS
TENDERING IN FRANCE SHOULD READ THE COMMUNIQUE IN ITS ENTIRETY BEFORE ANY
DECISION IS MADE WITH RESPECT TO SUCH TENDERING.
Due to centralization and settlement delays in France, any holder desiring
to tender its Shares in France will have to send instructions to its financial
intermediary no later than September 25, 1997, unless the Offer is extended.
Any withdrawal with respect to Shares tendered in France will have to be made,
unless the Offer is extended, no later than September 25, 1997. Following such
date, unless the Offer is extended, holders tendering Shares in France will
not have withdrawal rights. Any shareholder may, at all times through the
Expiration Date, tender Shares in the United States. French holders who desire
to tender their Shares in the United States are urged to contact the
Information Agent. As an accommodation to holders tendering their Shares in
France, consideration for such Shares is payable, at the holder's election, in
United States Dollars or the equivalent amount in French Francs converted at
the average weighted rate used by Societe Generale the day after the
expiration of the Offer in the United States to convert funds deposited with
it.
NOTE AUX ACTIONNAIRES EN FRANCE
Les actionnaires dont les actions sont admises en SICOVAM et qui souhaitent
apporter leurs actions a l'Offre en France devront se referer au Communique en
date de la presente Offre, publie dans l'edition du 22 Aout 1997 des Echos et
de La Tribune et a l'avis de la Societe de Bourses Francaises publie le 22
Aout 1997. Le Communique, ainsi que l'Offer to Purchase et les documents qui
l'accompagnent sont tenus a la disposition des actionnaires aux adresses
suivantes: Rhone-Poulenc S.A., 25, quai Paul Doumer, 92408 Courbevoie Cedex,
France; Morgan Stanley S.A., 25, rue Balzac, 75008 Paris, France; Union de
Banques Suisses S.A., 69 boulevard Haussmann, 75008 Paris, France; ou Societe
Generale, Tour Societe Generale, 17, cours Valmy, 92972 Paris-La Defense,
France, l'etablissement centralisateur. Ces documents peuvent egalement etre
obtenus, sans frais, aupres des intermediaires financiers teneurs de compte de
chaque actionnaire. Une version en anglais du communique est deposee avec
cette Offre et peut etre obtenue aupres de la Commission. LES DETENTEURS
D'ACTIONS AUX ETATS-UNIS NE PEUVENT PAS APPORTER LEURS ACTIONS A L'OFFRE EN
FRANCE. TOUS LES ACTIONNAIRES APPORTANT LEURS TITRES EN FRANCE SONT INVITES A
LIRE LE COMMUNIQUE DANS SON INTEGRALITE AVANT DE PRENDRE TOUTE DECISION.
En raison des delais de centralisation des ordres et de reglement livraison
en France, les actionnaires qui souhaitent apporter leurs actions a l'offre en
France devront faire parvenir leurs instructions a leur etablissement teneur
de compte au plus tard le 25 Septembre 1997 inclus sauf prorogation. La
revocation de
3
<PAGE>
tous ordres passes en France devra intervenir avant le 25 Septembre 1997
inclus, sauf prorogation, date apres laquelle les actionnaires apportant leurs
titres en France ne pourront plus revoquer leurs ordres. Tous les actionnaires
peuvent apportent leurs titres aux Etats-Unis, a tout moment jusqu'au 1er
Octobre 1997. Les detenteurs d'Actions en France qui desirent apporter leurs
titres aux Etats-Unis sont invites a contacter l'Information Agent. Pour ceux
qui apporteraient leurs titres en France, le reglement du prix de ces titres
peut etre effectue, au choix de l'actionnaire, en dollars U.S. ou en francs
francais, au taux de change moyen pondere auquel la Societe Generale aura
realise la conversion des fonds le lendemain du jour de cloture de l'Offre aux
Etats-Unis.
4
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE OFFER
Pursuant to the Acquisition Agreement, Purchaser acquired, in two
transactions, Shares representing approximately 68.68% of the Company's then
issued and outstanding Shares on a fully diluted basis. First, upon expiration
on May 5, 1990 of its tender offer for Shares, Purchaser purchased Shares
tendered to it representing approximately 50.1% of the then issued and
outstanding Shares on a fully diluted basis. Then, on July 31, 1990, the
Company issued additional Shares to Purchaser in consideration of the
contribution by Purchaser to the Company of its human pharmaceutical business,
the issuance by Purchaser to the Company of certain contingent value rights
(which were subsequently transferred to holders of Shares other than
Purchaser) and certain other transactions.
In accordance with the terms of the Acquisition Agreement, the Company Board
is comprised of seven individuals selected by Purchaser, three executive
officers of the Company and three individuals (Messrs. Frey and Riepe and Dr.
Topol), who are Independent Directors (as defined in the Acquisition
Agreement).
Pursuant to certain standstill provisions set forth in the Acquisition
Agreement, through July 31, 1997 and subject to certain conditions, Purchaser
was prohibited from making purchases of Shares that would increase its
ownership of Shares above 68.68% of the then issued and outstanding Shares. In
compliance with such provisions, Purchaser has from time to time purchased
Shares in order to maintain its ownership interest in the Company at
approximately 68.68%. The Acquisition Agreement provides that after July 31,
1997, Purchaser is permitted to purchase Shares in open market transactions
provided that such purchases do not increase its ownership interest above 75%
of the then issued and outstanding Shares. Nevertheless, Purchaser is
permitted under the Acquisition Agreement to acquire Shares in excess of the
75% limitation provided that it acquires such additional Shares pursuant to a
tender offer meeting the following conditions (a "Qualifying Tender Offer"):
(i) the offer must be conditioned upon there being validly tendered and not
withdrawn prior to the expiration of the offer such number of the then issued
and outstanding Shares, other than the Purchaser Shares, which, when taken
together with the Purchaser Shares, constitutes at least 90% of the then
issued and outstanding Shares; (ii) the offer must be a "tender offer" for
purposes of, and must be made in compliance with, Section 14(d)(1) of the
Exchange Act; (iii) the offer must not be permitted to expire without the
purchase of any Shares pursuant to the offer unless the offer has been open
for a minimum of 30 business days; and (iv) the offer must be proposed to be
followed by a merger between the Company and Purchaser or a subsidiary of
Purchaser in which all Shares (other than Shares beneficially owned by
Purchaser or its subsidiaries) are converted into the right to receive an
amount in cash equal to the amount paid per Share in the offer and in
connection with which it is proposed that the Company shall enter into
agreements with the holders of any options to purchase Shares pursuant to
which such options shall be purchased at a cash price per option equal to the
excess of the amount paid per Share in the offer over the exercise price of
such option.
In the spring of 1997, as part of a long-term strategic planning process,
management of Purchaser began examining restructuring options, including the
possibility of accelerating its transformation into a life sciences company.
One option considered was a potential business combination with the Company.
During this period, management of the Purchaser contacted UBS and Morgan
Stanley to obtain financial advisory services in connection with management's
study of restructuring options for Purchaser's businesses.
On June 25, 1997, the Board of Directors of Purchaser (the "Purchaser
Board") met in Courbevoie, France, at which meeting Mr. Jean-Rene Fourtou,
Chairman and Chief Executive Officer of Purchaser, and Mr. Igor Landau, a
director of Purchaser and Group President supervising the pharmaceuticals
segment, reported on management's study, including the possibility of a
business combination with the Company. At such meeting, the Purchaser Board
agreed with management's decision to proceed with the study. Following the
meeting, Mr. Landau contacted various members of the Company Board to inform
them of the meeting and of Purchaser's forthcoming press release.
5
<PAGE>
On June 26, 1997, Purchaser issued a press release (the "June 26, 1997
Announcement") announcing that, among other things, it was studying a
potential initiative to continue to strengthen its presence in life sciences
and to increase its strategic flexibility by increasing Purchaser's ownership
of the Company from approximately 68.3% to 100% through a business combination
with the Company at $92 per Share, which, if pursued, would be proposed after
the expiration, on July 31, 1997, of the standstill period under the
Acquisition Agreement. The press release reported that, if a business
combination were pursued, part of the financing would be obtained through a
capital increase by Purchaser. The press release also announced that Purchaser
was studying another potential initiative regarding a possible combination of
Purchaser's chemicals and fibers and polymers businesses into a new company
("NewChemco") and a public offering of shares of NewChemco, market conditions
permitting, with Purchaser retaining a substantial majority interest.
On June 26, 1997, the Company issued a press release indicating that it
intended to review the matters described in the June 26, 1997 Announcement
with the Company Board at a regularly scheduled meeting to be held on July 2,
1997.
On July 2, 1997 in Antony, France, during the regularly scheduled meeting of
the Company Board, Mr. Landau advised the Company Board of Purchaser's studies
and, in view thereof, recommended that the Company Board appoint a special
committee of Independent Directors. The Company Board then voted to form the
Special Committee, comprised of Messrs. Frey and Riepe and Dr. Topol, the
three Independent Directors on the Company Board. The Company Board empowered
the Special Committee to use its best efforts to negotiate with Purchaser in
order to secure the best available transaction on terms and conditions which
the Special Committee believes are fair to and in the best interests of the
Company. In addition, the Company Board authorized, among other things, the
Special Committee to retain independent legal counsel and financial advisors
and the Company to enter into an agreement with each of the members of the
Special Committee requiring the Company to indemnify each of them to the
fullest extent permitted by law in connection with his service as a member of
the Special Committee.
Following the Company Board meeting on July 2, 1997, two members of the
legal department and a member of the finance department of the Company were
appointed by the Chairman and Chief Executive Officer of the Company to assist
the Special Committee in the administrative aspects of its function in order
to ensure that it and its advisors had full and open access to all Company
information and personnel (the "Company Representatives"). In addition, the
Special Committee met and determined to retain the law firms of Skadden, Arps,
Slate, Meagher & Flom LLP ("Skadden, Arps"), as special counsel, and Morgan
Lewis & Bockius LLP, as Pennsylvania counsel. The Special Committee also
determined to send requests for proposals to certain investment banking firms
to serve as financial advisor to the Special Committee. The firms were
selected based on their international reputation, expertise in the
pharmaceutical industry and the belief that they had no relationship with
Purchaser or any of its affiliates.
On July 8, 1997, the Special Committee met by telephone conference with its
legal advisors and the Company Representatives. The Special Committee was
briefed on the process and legal implications relating to any proposal to be
received from Purchaser following the expiration of the standstill period
under the Acquisition Agreement as well as their fiduciary responsibilities
under the PBCL. On July 9, 1997, the Special Committee convened with its legal
advisors and the Company Representatives to review the proposals submitted by
the investment banking firms and to select certain of such firms to interview.
On July 16, 1997 and July 17, 1997, members of the Special Committee met
with representatives of the investment banking firms and on July 21, 1997, the
Special Committee retained Goldman Sachs as its financial advisor based on,
among other things, its expertise in the pharmaceutical industry, advisory
experience in similar transactions and the representation that Goldman Sachs
did not have an existing engagement with Purchaser nor would it accept an
assignment from Purchaser during its engagement by the Special Committee.
On July 23, 1997, members of the Special Committee met with Goldman Sachs,
the Company Representatives and Skadden, Arps to discuss, among other things,
due diligence and timing as well as strategy.
6
<PAGE>
On July 25, 1997, Mr. Landau had a telephone discussion with Mr. Riepe,
Chairman of the Special Committee, during which Mr. Riepe noted that the
standstill period under the Acquisition Agreement was nearing completion and
stated that if Purchaser were to make a proposal concerning a transaction
involving the Company, the Special Committee would prefer that such a proposal
be made formally to the Special Committee. Mr. Landau endorsed this approach
but cautioned that any such proposal would be subject to certain timing
constraints imposed by Purchaser's need to arrange financing. Mr. Riepe later
reported the substance of his conversation to the other members of the Special
Committee, Goldman Sachs and Skadden, Arps.
On July 31 and August 1, Mr. Landau had two telephone discussions with Mr.
Riepe. In each of these conversations, Mr. Landau reiterated that, in the
event Purchaser went forward with a transaction involving the Company, it
would be subject to certain timing considerations in connection with
Purchaser's arrangements for financing such a transaction. In particular, the
capital increase described in the June 26 Announcement would be subject to
timing constraints in view of, among other things, expected market conditions
in France. As a result of these timing constraints, Purchaser believed it
would need to reach a decision no later than August 10 as to whether to
proceed. Mr. Landau expressed Purchaser's preference to proceed with a
consensual transaction, but also indicated that Purchaser would consider
commencing a tender offer prior to obtaining the Special Committee's agreement
in order to retain the ability ultimately to close the tender offer on
Purchaser's desired schedule. In such a case Mr. Landau expected that
discussions with the Special Committee would continue. During the July 31,
1997 telephone conversation, Mr. Riepe explained to Mr. Landau that Goldman
Sachs was continuing its due diligence investigation of the Company but was
awaiting management projections in order to complete its valuation analysis of
the Company. Mr. Riepe also stated to Mr. Landau that any proposal made by
Purchaser needed to be fair to the Company and its minority shareholders, and
in order for the Special Committee and Purchaser to agree expeditiously on the
terms and conditions of any transaction it was essential that the per Share
consideration offered by Purchaser exceed $92 per Share. Messrs. Landau and
Riepe agreed that their respective advisors would have access to the same
Company information (including any projections prepared by management) and
would each participate in management due diligence sessions. Messrs. Landau
and Riepe also agreed that their respective financial advisors should discuss
any proposals before taking them up with the principals.
Shortly following these calls, Mr. Riepe updated Goldman Sachs and Skadden,
Arps on his conversations with Mr. Landau, and Goldman Sachs reported on the
progress of its due diligence investigation. Each of the other Special
Committee members was later contacted by Goldman Sachs to be updated on such
earlier conversation.
On August 7, 1997, Mr. Riepe conferred with Goldman Sachs and Skadden, Arps
for the purpose of receiving a status report on Goldman Sachs' due diligence
and general timing considerations.
On August 9, 1997, the August Projections (as defined below) were delivered
by the Company to Goldman Sachs, who in turn forwarded such projections to
Morgan Stanley.
On Monday, August 11, 1997, Messrs. Landau and Riepe conferred by telephone
and agreed that Morgan Stanley would have the opportunity to conduct
management due diligence sessions with Goldman Sachs in attendance during the
week of August 11, 1997. Mr. Landau informed Mr. Riepe that Purchaser believed
that August 18 would be the last possible date on which Purchaser would
consider announcing a tender offer if it determined to proceed. Messrs. Landau
and Riepe then agreed that their respective financial advisors should meet no
later than Thursday, August 14, 1997, to discuss valuation issues. Mr. Landau
repeated Purchaser's preference to commence a tender offer upon terms and
conditions agreed upon with the Special Committee, and proposed to travel to
the United States to meet with Mr. Riepe over the upcoming weekend, if Mr.
Riepe felt that such a meeting would be justified. Messrs. Landau and Riepe
agreed that the possibility of a meeting would be considered following the
results of the meeting between their respective financial advisors.
On August 12 and 13, 1997, Goldman Sachs and Morgan Stanley met with the
Company's management for due diligence sessions.
On August 13, 1997, the Special Committee met by telephone conference with
Goldman Sachs and Skadden, Arps at which time Goldman Sachs advised the
Special Committee of the progress of its due diligence investigation and its
preliminary views on valuation of the Company. The Special Committee
authorized
7
<PAGE>
Goldman Sachs to discuss with Morgan Stanley at their meeting to be held the
following day their preliminary view of value. In addition, the Special
Committee discussed at length the implications, process and strategy in the
event Purchaser were to commence a unilateral tender offer as Mr. Landau had
intimated to Mr. Riepe.
On August 14, 1997, Morgan Stanley and Goldman Sachs held a meeting to
discuss valuation issues. Although Morgan Stanley noted that Purchaser was not
making a formal proposal, Morgan Stanley informed Goldman Sachs that it
believed, based on the August Projections, that if a proposal were to be made,
such proposal would not exceed $92 per Share and that an unrecommended tender
offer could be commenced at a lower price. On August 15, 1997, Morgan Stanley
confirmed to Goldman Sachs that any proposal that Purchaser might make would
not exceed $92 per Share for a transaction recommended by the Special
Committee and that, due to timing considerations, Purchaser was expected to
reach a decision on whether to make a proposal and, if made, to announce a
tender offer on Monday, August 18, 1997, regardless of whether agreement had
yet been reached with the Special Committee. Morgan Stanley also reiterated
that Purchaser and its advisors were prepared to negotiate and reach agreement
with the Special Committee before such date and, if an agreement was not
reached within such time frame, to continue to negotiate with the Special
Committee after commencement of a tender offer. Goldman Sachs advised Morgan
Stanley that in the Special Committee's view a unilateral tender offer would
be detrimental to the Company and its various constituencies regardless of
Purchaser's intention to continue discussions in order to reach a consensual
transaction.
On August 15, 1997, members of the Special Committee met with Goldman Sachs
and Skadden, Arps by telephone conference. At this meeting Goldman Sachs
summarized the results of its meeting with Morgan Stanley. The Special
Committee concluded that it was appropriate to send the following letter to
Purchaser, Morgan Stanley and Shearman & Sterling, Purchaser's legal advisors:
Dear Igor:
As you are aware, at the request of Rhone-Poulenc, on July 2, 1997, the
Board of Directors of Rhone-Poulenc Rorer Inc. appointed a special
committee of independent directors of RPR to evaluate any proposal made by
Rhone-Poulenc to acquire the remaining common shares of RPR which RP does
not own. Further, the Special Committee's mandate requires us to use our
best efforts to negotiate any proposal in order to secure the best
available transaction on terms and conditions which the Special Committee
believes are fair and in the best interest of RPR and the minority
stockholders. To that end, the Special Committee interviewed and selected
legal and financial advisors in anticipation of receiving a proposal after
the expiration date of the standstill agreement between RP and RPR.
Rhone-Poulenc has expressed its desire to acquire the remaining
outstanding interest in RPR although to date RP has not made a formal
proposal to do so. Nonetheless, the Special Committee and its advisors
stand ready to continue discussions with the objective of developing a
transaction which the Special Committee would be in a position to recommend
to stockholders. You have indicated a preference for a transaction that is
accompanied by such a recommendation. Unfortunately, we understand from a
meeting between our financial advisors yesterday that RP will announce on
Monday its intention to commence a unilateral tender offer at a price at or
below $92.00 per share unless we agree to a transaction at $92.00 by no
later than Sunday evening.
The Special Committee does not believe that this approach is consistent
with RP's obligations as the controlling stockholder of RPR; and we are
confident that our acquiescence to such an approach would be affirmatively
detrimental to RPR and its minority stockholders and would not be
consistent with our fiduciary obligations. In addition, we believe a
unilateral offer by RPR's controlling stockholder which is not accompanied
by a recommendation of the Special Committee would be harmful to RPR's
other important constituencies, including its employees. If you wish to
proceed with a transaction recommended by the Special Committee, it is
incumbent upon Rhone-Poulenc and its advisors to discuss with the Special
Committee and its advisors RP's views as to the valuation of RPR. If you
proceed on a unilateral basis, you will be attempting to circumvent the
protections afforded by a special committee's role in helping to ensure
that a transaction in the best interests of RPR and all of its relevant
constituencies will be completed successfully.
Igor, as you know, the Special Committee and its advisors have been
working as expeditiously and thoroughly as possible to complete our due
diligence process. Much has been accomplished in the last two
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weeks, yet the Special Committee's advisors received RPR financial
projections only one week ago. Consistent with our mandate, we are ready,
willing and able to meet with you and your advisors to negotiate the terms
and conditions of a transaction to acquire the remaining outstanding shares
on a basis reflecting the full and fair value of RPR, provided RP is
prepared to negotiate in good faith and without the threat of a unilateral,
below market, imminent tender offer commenced on an arbitrary date.
Sincerely,
/s/ James S. Riepe
James S. Riepe, Chairman
Special Committee of the Board of
Directors
In response to such letter, on August 16, 1997 Mr. Landau sent the following
letter to Mr. Riepe, the other members of the Special Committee and the
Special Committee's financial and legal advisors:
Dear Jim,
Thank you for your letter of August 15, 1997. I would like to assure you
that I fully agree with you that it is our mutual responsibility to try to
achieve an agreement on the terms of an offer which reflects a fair
valuation of Rhone-Poulenc Rorer. For this reason, Rhone-Poulenc
recommended to RPR's Board of Directors the creation of the Special
Committee to represent the interests of the minority shareholders. The
Special Committee was appointed one and a half months ago, and its advisors
completed their due diligence on RPR's financial projections one week ago.
It therefore seems to us reasonable to expect that, at this time, the
Special Committee and its advisors have all the information they need to
negotiate and reach an agreement.
As you suggested in your letter, in order to proceed with a transaction
recommended by the Special Committee, we and our respective advisors need
to discuss with you our views as to the valuation of RPR. RP's advisors
have already communicated to the Special Committee's advisors our valuation
views. At this point, we are waiting to hear your views. In order to move
forward, I suggest that our respective advisors meet today to take the next
step in preparation for a meeting between you and me and our respective
advisors. I will be in Boston on Sunday for this purpose, as I proposed to
you one week ago.
To summarize, Rhone-Poulenc, as you state in your letter with regard to
the Special Committee, is ready, willing and able to meet and negotiate in
good faith with the expectation of reaching an agreement on the terms and
conditions of an offer.
I look forward to meeting you tomorrow with our respective advisors.
Sincerely,
/s/ Igor Landau
Igor Landau
Directeur General
At a meeting of the Special Committee and its advisors on the morning of
August 16, 1997, the Special Committee discussed the letter received from Mr.
Landau. In addition, Mr. Riepe reported that several Company Board members had
called him to convey their belief that Purchaser preferred to engage in a
transaction which was recommended by the Special Committee, but that Purchaser
was concerned that the market price of the Shares could rise to unrealistic
levels in the near term and that Purchaser needed to commence promptly an
equity offering to finance any transaction. At this meeting, the Special
Committee concluded that it would not be willing to negotiate with the threat
of a unilateral tender offer; however, it would enter into negotiations and
consider reducing the 30-business day offer period required under the
definition of Qualifying Tender Offer if Purchaser agreed not to commence a
unilateral tender offer in the immediate future and gave the Special Committee
an indication of value, which could not be below market.
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On August 16, 1997, in telephone conversations between Morgan Stanley and
Goldman Sachs, Goldman Sachs communicated the terms upon which the Special
Committee was prepared to enter into negotiations with Purchaser.
Following those conversations, Mr. Landau spoke with Mr. Riepe by telephone,
and they agreed that it was in the interest of all parties concerned,
including the Company and its minority shareholders, that, if agreement were
to be reached on the terms and conditions of a transaction, such agreement be
reached as soon as possible and that the Special Committee should have
adequate opportunity to duly consider the proposed terms and conditions.
Messrs. Landau and Riepe further agreed to seek to finalize negotiations no
later than August 19. Messrs. Landau and Riepe decided to meet in Boston,
Massachusetts, on Sunday, August 17, 1997, if Mr. Riepe felt such a meeting
would be useful following further discussions with his financial advisors.
During the evening of August 16, 1997, Morgan Stanley and Goldman Sachs met
to discuss their respective views on valuation. During the morning and
afternoon of August 17, 1997, the Special Committee met with its advisors in
Boston, Massachusetts to discuss in detail Goldman Sachs' views on valuation.
Following the Special Committee meeting and throughout the next day numerous
discussions and meetings were held between Messrs. Landau and Riepe and their
respective advisors. During the evening of August 18, Mr. Landau agreed to
confer with Purchaser Board members the following morning with respect to the
possibility of proceeding with an offer of $97 per Share; Mr. Riepe agreed to
convene a Special Committee meeting on August 19 to consider a $97 per Share
transaction; and it was agreed that the parties' respective legal counsel
would proceed with negotiation of the Merger Agreement.
During the morning of August 19, Mr. Landau called Mr. Riepe to advise him
that the Purchaser Board members with whom he conferred would support a
recommended transaction at $97 per Share.
At a meeting held in the evening of August 19, 1997, the Special Committee
unanimously recommended and approved the Merger Agreement and Merger. The
Company Board then met and approved and adopted the Merger Agreement and the
Merger Agreement was executed. On August 20, Purchaser and the Company
announced the Offer.
RECOMMENDATION OF THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE MERGER
Recommendation of the Special Committee and the Company Board
On August 19, 1997, the Special Committee unanimously determined that each
of the Offer and the Merger is fair to, and in the best interests of, the
Company, and unanimously voted to recommend and approve the Offer, the Merger
and the Merger Agreement.
On August 19, 1997, the Company Board, by a unanimous vote of all directors
present and voting, based in part on the unanimous recommendation and approval
of the Special Committee, approved the Merger Agreement and the transactions
contemplated thereby and determined that each of the Offer and the Merger is
fair to, and in the best interests of, the Company. The Company Board, by a
unanimous vote of all directors present and voting, has recommended that all
holders of Shares accept the Offer and tender their Shares pursuant to the
Offer. The directors of the Company Board designated by Purchaser and present
at the Company Board meeting (other than Mr. Cawthorn) recused themselves from
voting due to their inherent conflict of interest. Mr. Cawthorn did not recuse
himself because, unlike the other Purchaser designees, he had no affiliations
with Purchaser other than being a Purchaser designee to the Company Board, and
in fact was the former Chairman of the Board, President and Chief Executive
Officer of the Company. Furthermore, Mr. Cawthorn beneficially owns 98,620
Shares and holds options to purchase 326,789 Shares, and therefore has a
significant economic incentive in addition to his fiduciary duties to ensure
that the best available transaction for the Company was obtained.
Fairness of the Offer and the Merger
Special Committee. In reaching its determinations referred to immediately
above, the Special Committee considered the following factors, each of which,
in the view of the Special Committee, supported such determinations:
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(i) the historical market prices and recent trading activity of the
Shares, including (x) that the Offer of $97 per Share represents a premium
of approximately 22% over the $79.44 per Share closing price on June 25,
1997, the day prior to the June 26, 1997 Announcement, a premium of
approximately 20% over the $80.88 per Share closing price on June 13, 1997,
which was the 52-week high closing price for the Shares prior to the June
26, 1997 Announcement, and a premium of approximately 53.1% over the $63.38
per Share closing price on July 24, 1996, which was the 52-week low closing
price prior to the June 26, 1997 Announcement, (y) that the weighted
average per Share price between June 26, 1997 and August 17, 1997 was
$92.48 per Share, and (z) that the Shares never traded on the New York
Stock Exchange (the "NYSE") above $96 per Share following the June 26, 1997
Announcement;
(ii) the history of the negotiations between the Special Committee and
its representatives and Purchaser and its representatives, including that
(a) the negotiations resulted in an increase in the price at which
Purchaser was prepared to acquire the Shares from $92 to $97 per Share, and
(b) the Special Committee's belief that Purchaser would not further
increase the Offer price, and accordingly $97 per Share was, in the opinion
of the Special Committee, the highest price which could be obtained from
Purchaser;
(iii) the opinion of Goldman Sachs that based upon and subject to the
assumptions and qualifications stated therein the $97 per Share to be
received by the shareholders of the Company (other than Purchaser and its
subsidiaries) in the Offer and the Merger is fair to such holders, and the
report and analysis presented to the Special Committee in connection
therewith (See "SPECIAL FACTORS--Opinion of Goldman Sachs & Co.);
(iv) the fact that the standstill provisions in the Acquisition Agreement
expired on July 31, 1997 after which time Purchaser is permitted to acquire
in the open market such number of Shares which together with the Shares
owned by Purchaser would not exceed 75% of the outstanding Shares, and to
the extent Purchaser wanted to exceed the 75% threshold, Purchaser was
entitled to commence a Qualifying Tender Offer which could be at a price
per Share below Purchaser's original price of $92 per Share or otherwise
substantially below the $97 per Share Offer price;
(v) the belief that a Qualifying Tender Offer unilaterally commenced by
Purchaser without a recommendation of the Special Committee may have been
successfully completed at a price lower than that negotiated and
recommended by the Special Committee;
(vi) the possibility that, because of potentially lower than expected
projected Company earnings or a decline in the trading price of the Shares
or the stock market in general, the consideration the minority shareholders
would obtain in a future transaction might be less advantageous than the
consideration they will receive pursuant to the Offer and the Merger;
(vii) the Special Committee recognized that the sale of control of the
Company to Purchaser occurred in 1990 upon consummation of the transactions
contemplated in the Acquisition Agreement;
(viii) Purchaser has sufficient stock ownership to control a disposition
of the Company and the Special Committee and Goldman Sachs were not
authorized to, and did not, solicit third party indications of interest for
the acquisition of the Company or its businesses;
(ix) the terms of the Offer, the Merger and the Merger Agreement,
including (a) that the Minimum Condition may not be waived; (b) that the
terms and conditions of the Offer may not be changed in any manner which is
materially adverse to the minority shareholders without the consent of the
Special Committee; (c) that the recommendation of the Special Committee may
be withdrawn, modified or amended to the extent the Special Committee
believes it necessary to do so in the exercise of its fiduciary duties; (d)
that the Offer is not subject to any financing condition; (e) that the
terms of the Merger Agreement may only be amended or waived by the Special
Committee; and (f) the limited nature of other conditions to the Offer and
the Merger;
(x) the Minimum Condition requirement that the Offer not be consummated
unless at least 68.7% of the Shares not held by Purchaser be validly
tendered pursuant to the Offer and not withdrawn;
(xi) the availability of dissenters' rights for the minority shareholders
under the PBCL in connection with the Merger; and
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<PAGE>
(xii) the risk that the Company would suffer the loss of key employees
and other adverse consequences if Purchaser were to commence a unilateral
tender offer.
Company Board. In reaching its determinations referred to above, the Company
Board considered the following factors, each of which, in the view of the
Company Board, supported such determinations: (i) the conclusions and
recommendations of the Special Committee; (ii) the factors referred to above
as having been taken into account by the Special Committee, including the
receipt by the Special Committee of the opinion of Goldman Sachs addressed
solely to the Special Committee that based upon and subject to the assumptions
stated therein the $97 per Share to be received by the shareholders of the
Company (other than Purchaser and its subsidiaries) in the Offer and the
Merger is fair to such holders and the analysis presented to the Company
Board; and (iii) the fact that the Offer price and the terms and conditions of
the Merger Agreement were the result of arm's-length negotiations between the
Special Committee and Purchaser.
The members of the Company Board, including the members of the Special
Committee, evaluated the Offer and the Merger in light of their knowledge of
the business, financial condition and prospects of the Company, and based upon
the advice of financial and legal advisors. In light of the number and variety
of factors that the Company Board and the Special Committee considered in
connection with their evaluation of the Offer and the Merger, neither the
Company Board nor the Special Committee found it practicable to assign
relative weights to the foregoing factors, and, accordingly, neither the
Company Board nor the Special Committee did so.
The Company Board, including the members of the Special Committee, believes
that the Offer and the Merger are procedurally fair because, among other
things: (i) the Offer is in all material respects a Qualifying Tender Offer as
defined in the Acquisition Agreement and the Merger will be conducted in
accordance with requirements of the Acquisition Agreement; (ii) the Special
Committee consisted of Independent Directors appointed to represent the
interests of the shareholders other than Purchaser; (iii) the Special
Committee retained and was advised by independent legal counsel; (iv) the
Special Committee retained Goldman Sachs as its independent financial advisor
to assist it in evaluating a potential transaction with Purchaser and received
advice from Goldman Sachs; (v) the existence of the Minimum Condition (which
may not be waived) has the effect of requiring approximately two-thirds of the
Company's shareholders (other than Purchaser) to tender their Shares into the
Offer in order for it to be consummated; (vi) the deliberations pursuant to
which the Special Committee evaluated the Offer and the Merger and
alternatives thereto; and (vii) the fact that the $97 per Share price and the
other terms and conditions of the Merger Agreement resulted from active arm's-
length bargaining between representatives of the Special Committee, on the one
hand, and representatives of Purchaser, on the other.
The Board and the Special Committee recognized that the Merger is not
structured to require the approval of a majority of the shareholders of the
Company other than Purchaser, and that Purchaser currently has sufficient
voting power to approve the Merger without the affirmative vote of any other
shareholder of the Company. A condition to the Merger, however, is that the
Purchaser shall have purchased all Shares tendered in the Offer. Consummation
of the Offer is conditioned upon there being validly tendered, and not
withdrawn, such number of the then issued and outstanding Shares, other than
the Purchaser Shares, which, when taken together with the Purchaser Shares,
constitutes 90% of the then issued and outstanding Shares, which effectively
requires that approximately two-thirds of the minority shareholders tender
their Shares.
OPINION OF GOLDMAN, SACHS & CO.
Goldman Sachs has acted as financial advisor to the Special Committee in
connection with the Merger, as described under "SPECIAL FACTORS--Background of
the Offer and the Merger". On August 19, 1997, Goldman Sachs delivered its
oral opinion, which was subsequently confirmed in writing, to the Special
Committee that, as of the date of such opinion, the $97 per Share in cash to
be received by the holders of Shares other than Purchaser and its subsidiaries
in the Offer and the Merger is fair to such holders.
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<PAGE>
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AUGUST 19, 1997,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
SCHEDULE II AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS OF THE
COMPANY ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Annual Reports to Shareholders and Annual
Reports on Form 10-K of the Company for the five years ended December 31,
1996; (iii) certain interim reports to shareholders and Quarterly Reports on
Form 10-Q; (iv) certain other communications from the Company to its
shareholders; and (v) certain internal financial analyses and forecasts for
the Company prepared by its management. Goldman Sachs held discussions with
members of the senior management of the Company regarding its past and current
business operations, financial condition and future prospects. Goldman Sachs
also held discussions with members of the senior management of Centeon L.L.C.
("Centeon"), a joint venture in which the Company has a 50% interest. In
addition, Goldman Sachs reviewed the reported price and trading activity for
the Shares, compared certain financial and stock market information for the
Company with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy
and completeness for purposes of rendering its opinion. In addition, Goldman
Sachs has not made an independent evaluation or appraisal of the assets and
liabilities of the Company or any of its subsidiaries, and Goldman Sachs has
not been furnished with any such evaluation or appraisal. Goldman Sachs was
not requested or authorized to solicit, and did not solicit, interest from any
party with respect to an acquisition of the outstanding Shares, the Company or
its constituent businesses. The opinion of Goldman Sachs referred to herein
was provided for the information and assistance of the Special Committee in
connection with its consideration of Offer and the Merger and does not
constitute a recommendation as to whether any holder of Shares should tender
such Shares in the Offer.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinion to the Special
Committee on August 19, 1997.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the Shares for the period from
August 14, 1995 to August 18, 1997. Such analysis indicated that the
closing price per Share during such period ranged from $42.13 to $95.94.
Goldman Sachs also reviewed the weighted average trading prices for the
Shares for four periods. Such analysis indicated that the weighted average
price per Share for the period from July 31, 1993 (the date of the
retirement of the Company's contingent value rights) to June 25, 1997 (the
day prior to the June 26, 1997 Announcement) was $52.31; for the one year
period ending June 25, 1997 was $72.22; for the period from October 10,
1996 (the date a product recall by Centeon was announced) to June 25, 1997
was $73.11; and for the period from June 26, 1997 to August 18, 1997 was
$92.48
(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to the Company to corresponding
financial information, ratios and public market multiples for publicly
traded corporations: Abbott Laboratories, American Home Products Corp.,
Bristol-Myers Squibb Co., Eli Lilly & Co., Merck & Co. Inc., Pfizer Inc.,
Pharmacia & Upjohn, Inc., Schering-Plough Corp. and Warner-Lambert Co. (the
"Selected Companies"). The Selected Companies were chosen because they are
publicly traded companies with operations that for purposes of analysis may
be considered similar to the Company. Goldman Sachs calculated and compared
various financial multiples and ratios. The multiples of the Company were
calculated using per Share prices of $79.44 and $94.56, the closing prices
of the Shares on the NYSE on June 25, 1997 and August 18, 1997,
respectively, and a per Share price of $97.00, the price to be paid in the
Offer. The multiples and ratios for the Company were based on publicly
available information and information provided by the Company's management
and the multiples for each of the Selected Companies were based on the most
recent publicly available information. With
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<PAGE>
respect to the Selected Companies, Goldman Sachs considered levered market
capitalization in United States dollars (i.e., the market value of common
equity plus book value of debt less cash) as a multiple of Latest Twelve
Months ("LTM") sales, as a multiple of LTM earnings before interest, taxes,
depreciation and amortization ("EBITDA") and as a multiple of LTM earnings
before interest and taxes ("EBIT"). Goldman Sachs' analyses of the Selected
Companies indicated levered multiples of LTM sales, which ranged from 2.5x
to 6.0x with a mean and median of 5.0x, LTM EBITDA, which ranged from 8.2x
to 26.9x with a mean of 16.8x and a median of 16.1x, and LTM EBIT, which
ranged from 10.5x to 32.9x with a mean of 19.8x and a median of 18.0x,
compared to levered multiples of 2.6x, 11.9x and 17.0x, respectively, for
the Company based on a stock price of $79.44 per Share, 3.1x, 13.8x and
19.6x, respectively, for the Company based on a stock price of $94.56 per
Share and 3.1x, 14.1x and 20.0x, respectively, for the Company based on a
stock price of $97.00 per Share. Goldman Sachs also considered estimated
calendar year 1997 and 1998 price/earnings ratios, which, for the Selected
Companies, ranged from 20.3x to 38.9x with a mean of 26.6x and a median of
24.2x for estimated calendar year 1997 and 17.3x to 29.6x with a mean of
22.2x and a median of 20.5x for estimated calendar year 1998 compared to
22.1x and 18.7x, respectively, for the Company based on a stock price of
$79.44 per Share, 26.3x and 22.3x, respectively, for the Company based on a
stock price of $94.56 per Share and 26.9x and 22.8x, respectively for the
Company based on a stock price equal to $97.00 per Share; LTM EBITDA
margins, LTM EBIT margins and LTM net margins, which, for the Selected
Companies, ranged from 18.8% to 38.1% with a mean of 30.2% and a median of
30.4%, 15.3% to 31.0% with a mean of 25.6% and a median of 26.8% and 10.3%
to 21.7% with a mean of 17.5% and a median of 17.6%, respectively, compared
to 22.2%, 15.5% and 7.6%, respectively, for the Company; estimated calendar
year 1997 price/earnings to total return ratios, which, for the Selected
Companies, ranged from 1.4x to 2.2x with a mean of 1.7x and a median of
1.6x compared to 1.4x for the Company based on a stock price of $79.44 per
Share, 1.7x for the Company based on a stock price of $94.56 per Share and
1.8x based on a stock price equal to the $97.00 per Share; estimated
calendar year 1997 and 1998 price/earnings growth multiples which, for the
Selected Companies, ranged from 1.7x to 2.4x with a mean and median of 2.0x
for estimated calendar year 1997 and 1.5x to 1.8x with a mean and median of
1.7x for estimated calendar year 1998 compared to 1.6x and 1.3x,
respectively, for the Company based on a stock price of $79.44 per Share
and 1.9x and 1.6x, respectively, for the Company based on stock price of
$94.56 per Share and 1.9x and 1.6x, respectively, for the Company based on
a stock price equal to $97.00 per Share; and a five-year average earnings
per Share ("EPS") growth rate (obtained through Institutional Brokers
Estimate System) for the Selected Companies ranging from 10.0% to 16.5%
with a mean of 13.4% and a median of 13.0% compared to 14.0% for the
Company.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed discounted
cash flow analyses using the August Projections (as hereinafter defined)
prepared by the Company (the "Base Case") and using the August Projections
and adding to the Base Case certain products in the Company's research and
development pipeline that were excluded ("Excluded Pipeline") from the Base
Case (the "Base Case Plus Excluded Pipeline"). Goldman Sachs calculated a
net present value of free cash flows for the fourth quarter of 1997 and for
the years 1998 through 2002 using discount rates ranging from 10.0% to
11.0%. Goldman Sachs calculated the Company's terminal values in the year
2002 based on the marginal free cash flow growth rate in 2002 to estimate
free cash flow in 2003 and perpetual growth rates of free cash flows
ranging from 5.0% to 6.0%. These terminal values were then discounted to
present value using discount rates ranging from 10.0% to 11.0%. Such
analyses indicated implied per Share values ranging from $72.88 to $114.54
in the Base Case and $84.70 to $132.93 in the Base Case Plus Excluded
Pipeline.
(iv) Component Analysis. Goldman Sachs performed separate valuation
analyses on three financial components of the Company: the Base Case
excluding the contribution to earnings and cash flow from Centeon L.L.C.
("Centeon"), the Company's 50/50 joint venture with Behringwerke AG, a
subsidiary of Hoechst AG ("Base Case without Centeon"), the Excluded
Pipeline and Centeon. Goldman Sachs performed discounted cash flow analyses
on the Base Case without Centeon, calculating a net present value of free
cash flows for the fourth quarter of 1997 and the years 1998 through 2002
using discount rates ranging from 10.0% to 11.0%. Goldman Sachs calculated
terminal values in the year 2002 based on the marginal free cash flow
growth rate in the year 2002 to estimate free cash flow in 2003 and
perpetual growth
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rates of free cash flows ranging from 5.0% to 6.0%. These terminal values
were then discounted to present value using discount rates ranging from
10.0% to 11.0%. Such analysis indicated implied per Share values ranging
from $62.76 to $99.72.
Goldman Sachs also performed discounted cash flow analyses on the Base
Case without Centeon including the Excluded Pipeline, calculating the net
present value of free cash flows for the fourth quarter of 1997 and the
years 1998 through 2002 using discount rates ranging from 10.0% to 11.0%.
Goldman Sachs calculated terminal values in the year 2002 based on the
marginal free cash flow growth rate in the year 2002 to estimate free cash
flow in 2003 and perpetual growth rates of free cash flows ranging from
5.0% to 6.0%. These terminal values were then discounted to present value
using discount rates ranging from 10.0% to 11.0%. Goldman Sachs then
subtracted the net present values obtained for the Base Case without
Centeon from the net present values obtained for the Base Case without
Centeon including the Excluded Pipeline to determine the implied net
present value of the Excluded Pipeline. Such analyses indicated implied per
Share values of the Excluded Pipeline ranging from $9.55 to $14.84.
Goldman Sachs also valued the Excluded Pipeline by using a Monte Carlo
simulation to determine the probability-weighted value of the Excluded
Pipeline using management estimates for probability of technical success
and cash flows for the initial development period and the first ten years
from date of launch for each product for the Excluded Pipeline and standard
pharmaceutical product lifecycle sales and cash flow curves for an
additional 15 years for each product. Such analysis indicated implied per
Share values for the Excluded Pipeline, assuming 1 standard deviation
around the mean, ranging from $9.00 to $17.00.
Goldman Sachs calculated the net present value of Centeon using
management's projections for the years 1998 through 2000 and a terminal
value equal to 10.0x year 2000 operating income. Using discount rates of
12.0% to 15.0%, such analysis indicated implied per Share values of Centeon
of $7.88 and $7.31, respectively.
(v) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to the following transactions involving sales of
control in the pharmaceutical industry since 1990: Hoechst/Marion-Merrell
Dow; Glaxo plc/Wellcome plc; American Home Products/American Cyanamid;
Roche Ltd./Syntex; Rhone-Poulenc S.A./Rorer Group Inc. (the "Selected
Transactions"). Such analysis indicated that for the Selected Transactions
(i) total entity value as a multiple of LTM sales ranged from 2.0x to 3.6x
with a mean of 2.7x and a median of 2.5x, as compared to 3.2x for the total
entity value of the Company, (ii) total entity value as a multiple of LTM
EBIT ranged from 10.2x to 23.4x with a mean of 15.7x and a median of 12.3x,
as compared to 20.4x for the total entity value of the Company and (iii)
the total equity market value as a multiple of LTM net income ranged from
15.8x to 38.7x with a mean of 24.2x and a median of 22.1x, as compared to
35.8x for the total equity market value of the Company.
(vi) Selected Buyouts By Significant Existing Shareholders. Goldman Sachs
analyzed certain information relating to the premiums paid in selected
transactions involving buyouts of a minority interest by an existing
significant shareholder since 1988. Such analysis indicated initial bid
price premiums over market price one month prior to the announcement of the
transaction which ranged from negative 8.4% to 241.7% with a mean of 27.0%
and a median of 20.0% and final premiums over market price one month prior
to the announcement of the transaction ranging from negative 20.0% to
241.7% with a mean of 34.2% and a median of 26.1%, each as compared to a
30.8% premium of the $97.00 per Share to be paid in the Offer over the per
Share closing price on the NYSE on May 28, 1997 (four weeks prior to the
June 26, 1997 Announcement).
(vii) Present Value of Implied Future Stock Price. Goldman Sachs
performed an analysis to determine the present value of implied future
Share prices based on four different scenarios of estimates of EPS for the
Company for the years 1998 through 2002. Goldman Sachs used the EPS
estimates from the Base Case and the Base Case Plus Excluded Pipeline, each
with and without including the impact of reducing the Company's excess
inventory position with customers included in the Company's management's
projections ("De-load", respectively without De-load, the "Base Case
Without De-load"
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and the "Base Case Plus Excluded Pipeline Without De-load"). Goldman Sachs
calculated the implied future Share prices using price/earnings multiples
of 21.0x and 23.0x. These implied future Share prices were then discounted
to present value using discount rates of 10.5% and 14.0%. This analysis
indicated that the present value of the implied future Share price for the
years 1997 through 2001 using price/earnings multiples of 21.0x and 23.0x
and based upon a discount rate of 10.5% ranged from $72.03 to $112.03 in
the Base Case, $78.54 to $112.32 in the Base Case Without De-load, $72.24
to $129.74 in the Base Case Plus Excluded Pipeline and $78.75 to $130.04 in
the Base Case Plus Excluded Pipeline Without De-load, and, based upon a
discount rate of 14.0% ranged from $72.03 to $99.21 in the Base Case,
$78.54 to $99.49 in the Base Case Without De-load, $72.24 to $114.86 in the
Base Case Plus Excluded Pipeline and $78.75 to $115.14 in the Base Case
Plus Excluded Pipeline Without De-load.
(viii) Impact on EPS Analysis. Goldman Sachs performed an analysis to
determine the impact on Purchaser of an acquisition of the Shares held by
holders other than Purchaser and its subsidiaries at prices per Share
ranging from $92.00 to $104.00. Such analysis indicated substantial
dilution to Purchaser's 1998 estimated EPS and that Purchaser's pro forma
net debt to total capital ratio ranged from 53.8% to 54.4%.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is directly
comparable to the Company or Purchaser or the contemplated transaction. The
analyses were prepared solely for purposes of Goldman Sachs' providing its
opinion to the Special Committee as to the fairness of the $97 per Share in
cash to be received by the holders of Shares in the Offer and the Merger and
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of the Company, Purchaser, Goldman Sachs or
any other person assumes responsibility if future results are materially
different from those forecast. As described above, Goldman Sachs' opinion to
the Special Committee was one of many factors taken into consideration by the
Special Committee in making its determination to recommend the adoption of the
Merger Agreement to the Board of Directors of the Company. The foregoing
summary does not purport to be a complete description of the analysis
performed by Goldman Sachs and is qualified by reference to the written
opinion of Goldman Sachs set forth on Schedule II attached hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. The Special Committee
selected Goldman Sachs as its financial advisor because it is an
internationally recognized investment banking firm, has substantial experience
in transactions similar to the Offer and the Merger, has expertise in the
pharmaceutical industry and represented that it did not have an existing
engagement with Purchaser, nor would it accept an assignment from Purchaser
during its engagement by the Special Committee.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of the Company and/or Purchaser for its own account and for the
account of customers. As of the date hereof, Goldman Sachs holds for its own
account a long position of 828,962 Shares.
Pursuant to a letter agreement dated July 21, 1997 (the "Engagement
Letter"), the Company engaged Goldman Sachs to act as exclusive financial
advisor to the Special Committee in connection with its consideration of any
proposals made by Purchaser to acquire all or substantially all of the
outstanding Shares held by shareholders other than Purchaser. Pursuant to the
terms of the Engagement Letter, the Company agreed
16
<PAGE>
to pay Goldman Sachs (i) a financial advisory fee of $500,000, (ii) a fee of
$1,500,000 upon the delivery of its opinion and (iii) a transaction fee equal
to (A) (I) 1.5% of the amount by which $96.00 exceeds $93.50 plus (II) 2.0% of
the amount by which $97.00 exceeds $96.00 times (B) the number of Shares
(including Shares issuable pursuant to options, warrants and convertible
securities) acquired by Purchaser. The Company has agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including attorney's fees,
and to indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
COMPANY BUDGET INFORMATION AND FINANCIAL PROJECTIONS
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data.
However, in connection with Purchaser's position as a controlling shareholder
of the Company, Purchaser has received and examined certain analyses prepared
by the Company which include projections of future financial results. In
addition, as a result of the review of the Company's financial position and
outlook, in the context of preparing for the Offer, Purchaser has received and
examined the August Projections for the years 1997 through 2002. Such
information has been set forth below for the limited purpose of giving the
Company's shareholders access to financial projections by the Company's
management that were available for review by Purchaser in connection with the
Offer.
Preliminary 1997 Budget. In connection with its preparation of its annual
budget in December 1996, the Company's management provided projections for the
year ended December 31, 1997 (the "Preliminary 1997 Budget") to the Company
Board at its meeting on December 13, 1996. The Preliminary 1997 Budget did not
take into account the potential impact of the voluntary suspension (the
"Centeon Suspension") of certain production and distribution activities by
Centeon and accordingly reflects the operating plan of Centeon for 1997. The
Company's management was unable to take into account such effect due to the
uncertain outcome of (i) the then ongoing review by the U.S. Food & Drug
Administration of manufacturing processes at a U.S. production facility of
Centeon and (ii) an upcoming meeting of Centeon's Board of Directors that was
to discuss the Centeon 1997 budget. For information regarding the Centeon
Suspension, see "Schedule IV--Note 5 to Consolidated Financial Statements".
The Preliminary 1997 Budget also assumed sustainable growth in net sales,
increased cost reduction, a deceleration of research and development expenses
and further improvements to gross margins due to changes in the Company's
product mix. The Preliminary 1997 Budget further assumed a French franc/U.S.
dollar exchange rate of FF5.50 = $1. Selected information presented in the
Preliminary 1997 Budget is set forth below:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
1996 FORECAST 1997 BUDGET
------------- -----------
(DOLLARS IN MILLIONS,
EXCEPT FOR PER SHARE
INFORMATION)
<S> <C> <C>
Net Sales....................................... $5,403 $5,409
Gross Margin.................................... 3,736 3,915
Operating income................................ 751 897
Income before tax(1)............................ 686 926
Earnings per Share.............................. 3.12 4.30
</TABLE>
--------
(1) Includes equity in earnings of Centeon of $82 million and $179
million in 1996 and 1997, respectively.
1997 Budget. In light of the impact of the Centeon Suspension, the Company
Board appointed a special budget committee (the "Budget Committee"), comprised
of Messrs. Frey, Landau and Riepe, to update the Preliminary 1997 Budget to
reflect the impact of the Centeon Suspension. At the February 20, 1997 meeting
of the Company Board, the Company's management informed the Company Board on
the status of its initial review of the Preliminary 1997 Budget and indicated
that projected earnings per Share for 1997 could be reduced from $4.30 to
approximately $3.65 per Share, principally to reflect the impact of the
Centeon Suspension.
17
<PAGE>
Following approval of Centeon's 1997 budget by Centeon's Board of Directors
at its March 4, 1997 meeting, the Budget Committee met on March 24, 1997 to
approve budgetary data projecting earnings per Share for 1997 of $3.65. The
Preliminary 1997 Budget was finalized by management in April 1997 and
presented to the Company Board at its meeting on May 7, 1997 (the "1997
Budget"). The 1997 Budget included the effect of the Centeon Suspension, but
was otherwise based on the same assumptions as the Preliminary 1997 Budget.
Selected information presented in the 1997 Budget is set forth below:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
------------------------------------
1996 ACTUAL 1997 BUDGET
---------------- -----------
(DOLLARS IN MILLIONS, EXCEPT FOR
PER SHARE INFORMATION)
<S> <C> <C>
Net sales.......................... $5,421 $5,414
Gross margin....................... 3,755 3,900
Operating income................... 661 869
Income before tax(1)............... 699 800
Earnings per Share................. 3.16 3.65
</TABLE>
--------
(1) Includes equity in earnings of Centeon of $85 million and $36
million in 1996 and 1997, respectively.
August Projections. On August 9, 1997, certain projections for the years
ending December 31, 1997 through 2002 (the "August Projections") were
delivered by the Company's management to Goldman Sachs, which in turn
forwarded such projections to Morgan Stanley. Morgan Stanley delivered the
August Projections to Purchaser on August 11, 1997. The August Projections
were produced by the Company in connection with a study commenced in July,
1997 at the request of the Special Committee and were delivered to Goldman
Sachs at the request of the Special Committee. The August Projections are
based on the following assumptions: a French franc/U.S. dollar exchange rate
from 1998-2002 of FF5.50 = $1; increased competition in the US respiratory
market, and the continuation of French government pressure to contain health
care costs; a gross margin improvement due to the product mix and to
divestitures of certain product lines; increased expenditures in promotional
efforts regarding the Company's strategic products; and an increase in French
corporate income taxes as proposed recently by the French government from
36.6% to 41.6% for calendar years 1997 and 1998.
It was also indicated by the Company that there was at the end of June 1997
a high level of inventory of certain of the Company's products currently held
by certain U.S. customers. The Company has not made any determination as to
whether and over what time period any inventory adjustments may be necessary.
If the Company decides to take actions to reduce inventories on a basis of a
three year adjustment (as was assumed in the August Projections that
management provided to Goldman Sachs), the projected increase in net sales
would be reduced by $80 million in each of the years 1998, 1999 and 2000, with
the impact on sales and earnings per Share as reflected below.
The August Projections are summarized below:
AUGUST PROJECTIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
FORECAST
FORECAST '97 IN '98
1997 STRUCTURE(1) 1998 1999 2000 2001 2002
-------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $5,112 $5,041 $5,262 $5,648 $6,071 $6,573 $7,001
Gross margin............ 3,694 3,642 3,842 4,125 4,444 4,758 5,046
Operating income........ 780 731 822 947 1,082 1,233 1,372
Centeon joint ven-
ture(2)................ (41) (41) 55 75 120 150 180
Income before tax....... 722 653 777 930 1,123 1,302 1,492
Earnings per Share...... 3.28 2.93 3.43 4.14 5.11 5.97 6.88
</TABLE>
- --------
(1) Excludes the effect of certain product lines divested by the Company in
1997.
(2) Equity in earnings of Centeon.
18
<PAGE>
Excluding the impact of any adjustments to inventory levels, the projected
net sales and earnings per Share would be as reflected below:
(DOLLARS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
FORECAST
FORECAST '97 IN '98
1997 STRUCTURE 1998 1999 2000 2001 2002
-------- ---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $5,112 $5,041 $5,342 $5,728 $6,151 $6,573 $7,001
Earnings per Share....... 3.28 2.93 3.72 4.43 5.40 5.97 6.88
</TABLE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS:
Certain matters discussed herein are forward-looking statements that involve
risks and uncertainties. Forward-looking statements include the information
set forth above concerning the Preliminary 1997 Budget, the 1997 Budget and
the August Projections (together, the "Projections"). Such information has
been included in this Offer to Purchase for the limited purpose of giving the
Company's shareholders access to financial projections by the Company's
management that were made available to Purchaser. Such information was
prepared by the Company's management for internal use and not with a view to
publication. The foregoing budget information and Projections were based on
assumptions concerning the Company's products and business prospects in 1997
through 2002, including the assumption that the Company would continue to
operate under the same ownership structure as then existed. The budget
information and Projections were also based on other revenue and operating
assumptions. Information of this type is based on estimates and assumptions
that are inherently subject to significant economic and competitive
uncertainties and contingencies, all of which are difficult to predict and
many of which are beyond the Company's control. Accordingly, there can be no
assurance that the projected results would be realized or that actual results
would not be significantly higher or lower than those set forth above. In
addition, neither the budget information nor the Projections were prepared
with a view to public disclosure or compliance with the published guidelines
of the Commission or the guidelines established by the American Institute of
Certified Public Accountants regarding projections and forecasts and are
included in this Offer to Purchase only because such information was made
available to Purchaser by the Company. Neither the Purchaser's nor the
Company's independent accountants have examined, compiled or applied any
agreed upon procedures to this information and, accordingly, assume no
responsibility for this information. Neither the Purchaser nor the Company nor
any other party assumes any responsibility for the accuracy or validity of the
foregoing projections.
POSITION OF PURCHASER REGARDING FAIRNESS OF THE OFFER AND THE MERGER
Purchaser believes that the consideration to be received by the Company's
shareholders, other than Purchaser, pursuant to the Offer and the Merger is
fair to the Company's shareholders other than Purchaser. Purchaser bases its
belief on the following facts: (i) the fact that the Special Committee
concluded that the Offer and the Merger are fair to, and in the best interests
of, the Company (ii) notwithstanding the fact that Goldman Sachs' opinion was
provided solely for the information and assistance of the Special Committee
and that Purchaser is not entitled to rely on such opinion, the fact that the
Special Committee received an opinion from Goldman Sachs that the $97 per
Share in cash to be received by the holders of Shares other than Purchaser and
its subsidiaries in the Offer and the Merger is fair to such holders (iii) the
Offer is a Qualifying Tender Offer under the Acquisition Agreement (other than
with respect to the minimum offering period, which has been reduced from 30
business days to 28 business days with the agreement of the Special Committee)
and as such is consistent with the original intent of the parties to the
Acquisition Agreement, and furthermore the Merger will be conducted in
accordance with the requirements of the Acquisition Agreement, (iv) the
presence of the Minimum Condition ensures that in order for the Offer to be
successful approximately two-thirds of the Shares not held by Purchaser will
have to be tendered into the Offer, (v) the historical and projected financial
performance of the Company and its financial results, (vi) the consideration
to be paid in the Offer represents a premium of 24.8% over the average closing
price for the one month period prior to June 26, 1997, (vii) the
19
<PAGE>
consideration to be paid in the Offer represents a premium of 22.1% over the
reported closing price on the last full trading day prior to the June 26, 1997
Announcement of Purchaser's study of a possible business combination with the
Company, on which date the last reported sale price was near its historic
closing high, (viii) the Acquisition Agreement was negotiated on an arm's-
length basis in 1990 and has resulted in the shareholders of the Company
benefiting from substantial appreciation in the value of their Shares since
1990, (ix) the same consideration will be paid in both the Offer and the
Merger and (x) the Offer and the Merger will each provide consideration to the
shareholders entirely in cash. Purchaser did not find it practicable to
assign, nor did it assign, relative weights to the individual factors
considered in reaching its conclusion as to fairness. In light of the nature
of the Company's business, Purchaser did not deem net book value or
liquidation value to be relevant indicators of the value of the Shares.
PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS OF PURCHASER FOR
THE OFFER AND THE MERGER
The purpose of the Offer and the Merger is for Purchaser directly to
increase, within the terms established by the Acquisition Agreement, its
ownership of Shares from approximately 68.1% to 100%. Upon consummation of the
Merger, the Company will become a direct wholly owned subsidiary of Purchaser.
The acquisition of the Shares not owned by Purchaser has been structured as a
cash tender offer followed by a cash merger in order to (i) comply with the
requirements of the Acquisition Agreement, (ii) effect a prompt and orderly
transfer of ownership of the Company from the public shareholders to Purchaser
and (iii) provide shareholders with cash for all of their Shares.
Under the PBCL, the approval of the Company Board and the affirmative vote
of the holders of a majority of the issued and outstanding Shares are required
to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger. The Company Board has approved and adopted the
Merger Agreement and the transactions contemplated thereby, and the only
remaining required corporate action of the Company is the approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the affirmative vote of the holders of a majority of the Shares. Purchaser
already has sufficient voting power to cause the approval and adoption of the
Merger without the affirmative vote of any other shareholder of the Company.
Pursuant to the Acquisition Agreement, however, Purchaser may only exercise
such voting power to effect a merger of the Company subsequent to a Qualifying
Tender Offer as defined in the Acquisition Agreement. The Offer satisfies the
requirements of a Qualifying Tender Offer except for the reduction in the
minimum offering period from 30 business days to 28 business days as approved
by the Special Committee,
In the Merger Agreement, the Company has agreed to take all action necessary
to convene a special meeting of its shareholders as soon as practicable
following consummation of the Offer for the purpose of considering and taking
action on the Merger Agreement and the transactions contemplated thereby and
to use its reasonable best efforts to obtain such approval and adoption.
Purchaser has agreed that all Shares owned by it and its subsidiaries will be
voted in favor of the Merger Agreement and the transactions contemplated
thereby.
Purchaser's principal strategic objective has been to reinforce its position
in the life sciences. In order to further this objective, Purchaser has
considered various means of expanding its collaboration with the Company,
including increasing its voting equity interest to 100%. Purchaser concluded
that such an acquisition would enhance Purchaser's strategic flexibility and
allow it to benefit from opportunities in the businesses in which Purchaser
and the Company operate. Purchaser also concluded that the combination of
Purchaser and the Company would result in Purchaser and its affiliates having
only one life sciences company with publicly-listed common stock, and a
separate listing of the specialty chemicals and services to industry business.
Such steps would bring about a clearer differentiation between life sciences,
on the one hand, and specialty chemicals and services, on the other. Purchaser
concluded that this clarification should promote an improvement in Purchaser's
market valuation. Consequently, Purchaser concluded that an acquisition by
Purchaser of the remaining Shares should be considered. Purchaser chose to
undertake the transaction at this time because (i) such a transaction was
prohibited by the Acquisition Agreement prior to the end of the standstill
period on July 31, 1997 and (ii) such transaction is consistent with
Purchaser's stated strategy of reinforcing its position in life sciences.
20
<PAGE>
PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER; CERTAIN EFFECTS OF THE
OFFER
Pursuant to the Merger Agreement, upon completion of the Offer, Purchaser
and the Merger Subsidiary intend to effect the Merger in accordance with the
Merger Agreement. See "SPECIAL FACTORS--The Merger Agreement".
Except as otherwise described in this Offer to Purchase, Purchaser has no
current plans or proposals which relate to or would result in: (a) other than
the Merger, an extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving the Company; (b) a sale or transfer of
a material amount of assets of the Company; (c) any change in the management
of the Company or any change in any material term of the employment contract
of any executive officer; or (d) any other material change in the Company's
corporate structure or business.
Nevertheless, Purchaser may initiate a review of the Company and its assets,
corporate structure, capitalization, operations, properties, policies,
management and personnel to determine what changes, if any, would be desirable
following the Merger in order best to organize and integrate the activities of
the Company and Purchaser. In particular, Purchaser may study the possibility
of changing the Company Board by changing the number or term of directors, and
may also consider material changes in the present dividend rate and policy,
indebtedness and capitalization of the Company. In particular, Purchaser
expressly reserves the right to make any changes that it deems necessary or
appropriate in light of its review or in light of future developments.
As a result of the Offer, the direct and indirect interest of Purchaser in
the Company's net book value and net earnings will increase to the extent of
the number of Shares acquired under the Offer. Following consummation of the
Merger, Purchaser's direct and indirect interest in such items will increase
to 100% (other than the issued and outstanding shares of preferred stock of
the Company), and Purchaser and its subsidiaries will be entitled to all
benefits resulting from that interest, including all income generated by the
Company's operations (other than income payable to holders of such preferred
stock), and any future increase in the Company's value and the right to elect
all members of the Company Board (other than the right of holders of preferred
stock to elect members of the Company Board under certain circumstances).
Similarly, Purchaser will also bear the risk of losses generated by the
Company's operations and any decrease in the value of the Company after the
Merger. Upon consummation of the Merger, the Company will become a privately
held corporation. Accordingly, shareholders will not have the opportunity to
participate directly in the earnings and growth of the Company after the
Merger and will not have any right to vote on corporate matters. Similarly,
shareholders will not face the risk of losses generated by the Company's
operations or decline in the value of the Company after the Merger.
Following the consummation of the Merger, the Shares will no longer be
quoted on the NYSE and Purchaser intends to cause the Shares to be no longer
quoted on the Premier Marche (marche a reglement mensual) of the Bourse de
Paris (the "Paris Bourse"). In addition, the registration of the Shares under
the Exchange Act will be terminated. Accordingly, following the Merger there
will be no publicly-traded Common Stock of the Company outstanding. See "THE
TENDER OFFER--Section 11. Effect of the Offer on the Market for the Shares;
the NYSE, Paris Bourse and Exchange Act Registration". It is expected that, if
Shares are not accepted for payment by Purchaser pursuant to the Offer and the
Merger is not consummated, the Company's current management, under the general
direction of the Company Board, will continue to manage the Company as an
ongoing business.
RIGHTS OF SHAREHOLDERS IN THE OFFER AND THE MERGER
NO DISSENTERS RIGHTS ARE AVAILABLE IN CONNECTION WITH THE OFFER. However, if
the Merger is consummated, shareholders who fully comply with the statutory
dissenters procedures set forth in the PBCL, the relevant portions of which
are attached to this Offer to Purchase as Schedule III, will be entitled to
receive cash for the fair value of their Shares as determined pursuant to the
procedures prescribed by the PBCL. Merely voting against the Merger Agreement
will not perfect a shareholder's dissenters rights. Shareholders are urged to
review
21
<PAGE>
carefully the dissenting shareholders' rights provisions of the PBCL, a
description of which is provided below and the full text of which is attached
to this Offer to Purchase as Schedule III and incorporated herein by
reference. SHAREHOLDERS WHO FAIL TO COMPLY STRICTLY WITH THE APPLICABLE
PROCEDURES WILL FORFEIT THEIR DISSENTERS RIGHTS IN CONNECTION WITH THE MERGER.
See Schedule III to this Offer to Purchase.
Sections 1571-80 of the PBCL ("Subchapter D") and 1930(a) of the PBCL,
copies of which are attached to this Offer to Purchase as Schedule III,
entitle any holder of record of Shares who objects to the Merger, in lieu of
receiving the consideration for such Shares provided under the Merger
Agreement, to demand in writing that he be paid in cash the fair value of his
Shares. Section 1572 of the PBCL defines "fair value" as: "The fair value of
shares immediately before the effectuation of the corporate action to which
the dissenter objects, taking into account all relevant factors, but excluding
any appreciation or depreciation in anticipation of the corporate action".
Any shareholder contemplating making demand for fair value is urged to
review carefully the provisions of Subchapter D, particularly the procedural
steps required to perfect his dissenters' rights thereunder. DISSENTERS RIGHTS
WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SUBCHAPTER D ARE NOT FULLY AND
PRECISELY SATISFIED. The following summary does not purport to be a complete
statement of the provisions of Subchapter D of the PBCL and is qualified in
its entirety by reference to Schedule III and the PBCL.
FILING NOTICE OF INTENTION TO DEMAND FAIR VALUE
Before the vote of the shareholders is taken on the Merger, the dissenting
shareholder must deliver to the Company a written notice of intention to
demand that he be paid the fair value of his Shares if the Merger is effected.
Such written notice must be sent to the Secretary of the Company at Rhone-
Poulenc Rorer Inc., 500 Arcola Road, Collegeville, Pennsylvania 19426. Neither
the tendering of Shares in the Offer, nor a vote against the Merger, is
sufficient to satisfy the requirement of delivering a written notice to the
Company. In addition, the shareholder must not effect any change in the
beneficial ownership of his Shares from the date of filing the notice with the
Company through the consummation of the Merger, and Shares for which payment
of fair value is sought must not be voted in favor of the Merger. Failure by a
dissenting shareholder to comply with any of the foregoing will result in the
forfeiture of any right to payment of fair value for his Shares.
RECORD OWNERS AND BENEFICIAL OWNERS
A record holder of Shares held in whole or in part for the benefit of
another person may assert dissenters rights as to fewer than all of the Shares
registered in his name only if he dissents with respect to all the Shares
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf he dissents. A beneficial owner of Shares
who is not the record holder may assert dissenters rights with respect to
Shares held on his behalf if he submits to the Company the written consent of
the record holder not later than the time of assertion of dissenters rights. A
beneficial owner may not dissent with respect to fewer than all of the Shares
owned by him, whether or not such Shares are registered in his name.
NOTICE TO DEMAND PAYMENT
If the Merger is approved, the Company shall mail to all dissenters who gave
due notice of their intention to demand payment of fair value and who
refrained from voting in favor of the Merger, a notice stating where and when
a demand for payment must be sent and certificates for Shares deposited in
order to obtain payment. The notice shall be accompanied by a copy of
Subchapter D and a form for demanding payment. The time set for the receipt of
demands and the deposit of certificates shall not be less than 30 days from
the mailing of the notice. Failure by a shareholder to demand payment or
deposit certificates pursuant to such notice will cause such shareholder to
lose all right to have a court determine the fair value of his Shares. If the
Merger has not been effected within 60 days after the date set for demanding
payment and depositing certificates, the Company
22
<PAGE>
shall return any certificates that have been deposited. The Company, however,
may at any later time send a new notice regarding demand for payment and
deposit of certificates with like effect.
PAYMENT OF FAIR VALUE OF SHARES
Promptly after the consummation of the Merger or upon timely receipt of
demand for payment if the Merger has already been effected, the Company shall
remit to dissenters who have made timely demand and deposited their
certificates the amount the Company estimates to be the fair value of their
Shares or give written notice that no remittance will be made under Section
1577 of the PBCL. Such remittance or notice shall be accompanied by (i) the
closing balance sheet and statement of income of the Company for a fiscal year
ending not more than 16 months prior to the date of remittance or notice
together with the latest available interim financial statements, (ii) a
statement of the Company's estimate of the fair value of the Shares, and (iii)
a notice of the right of the dissenting shareholder to demand payment or
supplemental payment, as the case may be, accompanied by a copy of Subchapter
D. If the Company does not remit the amount of its estimate of the fair value
of the Shares, it shall return all certificates that have been deposited and
may make a notation thereon that a demand for payment has been made.
If Shares with respect to which notation has been so made shall be
transferred, each new certificate issued therefor shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such Shares. A transferee of such Shares shall not acquire by such transfer
any rights in the Company other than those that the original dissenter had
after making demand for payment of fair value for such Shares.
ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES
If a dissenting shareholder believes that the amount estimated or paid by
the Company for his Shares is less than their fair value, the shareholder may
send to the Company his own estimate of the fair value which shall be deemed a
demand for payment of the amount of the deficiency. If the dissenter does not
file his own estimate of fair value within 30 days after the mailing by the
Company of its remittance or estimate of fair value, the dissenter shall be
entitled to no more than the amount remitted to him or estimated by the
Company.
VALUATION PROCEEDINGS
Within 60 days after the latest of (i) the consummation of the Merger, (ii)
timely receipt of any demands for payment and (iii) timely receipt of any
shareholder estimates of fair value, if any demands for payment remain
unsettled, the Company may file in court an application for relief requesting
that the fair value of the Shares be determined by the court. Each dissenter
whose demands have not been settled shall be made a party to the proceeding
and shall be entitled to recover the amount by which the fair value of his
Shares is found to exceed the amount, if any, previously remitted, plus
interest. Such dissenter shall also be entitled to interest on such amount
from consummation of the Merger until the date of payment as is fair and
equitable under the circumstances, taking into account all relevant factors
including the average rate currently paid by the Company on its principal bank
loans. If the Company fails to file an application within the 60-day period,
any dissenter who has not settled his claim may do so in the name of the
Company within 30 days after the expiration of this 60-day period. If no
dissenter files an application within such 30-day period, each dissenter who
has not settled his claim shall be paid no more than the Company's estimate of
the fair value of his Shares and may bring an action to recover any amount not
previously remitted.
COSTS AND EXPENSES OF VALUATION PROCEEDINGS
The costs and expenses of any valuation proceedings, including the
reasonable compensation and expenses of any appraiser appointed by the court,
shall be determined by the court and assessed against the Company except that
any part of such costs and expenses may be assessed as the court deems
appropriate against all or some of the dissenters whose action in demanding
supplemental payment is found by the court to be dilatory, obdurate,
arbitrary, vexatious or in bad faith. The court may also assess the fees and
expenses of counsel and
23
<PAGE>
experts for any or all of the dissenters against the Company if the Company
fails to comply substantially with Subchapter D or acts in bad faith or in a
dilatory, obdurate, arbitrary or vexatious manner. The court can also assess
any such fees or expenses incurred by the Company against a dissenter if such
dissenter is found to have acted in bad faith or in a dilatory, obdurate,
arbitrary or vexatious manner. If the court finds that the services of counsel
for any dissenter were of substantial benefit to the other dissenters and
should not be assessed against the Company, it may award to such counsel
reasonable fees to be paid out of the amounts awarded to the dissenters who
were benefitted.
OTHER
Section 1712 of the PBCL provides that a director of a Pennsylvania
corporation stands in a fiduciary relation to such corporation and must
perform his duties as a director in good faith, in a manner he reasonably
believes to be in the best interests of the corporation and with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. Section 1105 of the PBCL
provides in substance that a shareholder of a Pennsylvania corporation shall
not have any right to obtain, in the absence of fraud or fundamental
unfairness, an injunction against any proposed merger, nor any right to claim
the right to valuation and payment of the fair value of his Shares because of
the merger, except that he may dissent and claim such payment if and to the
extent provided in Subchapter D of PBCL Chapter 15, described above. Absent
fraud or fundamental unfairness, such dissenters rights are the exclusive
remedy of such shareholders. However, the United States Court of Appeals,
Third Circuit, interpreting the predecessor statute to Section 1105 of the
PBCL in Herskowitz v. NutriSystem, Inc., concluded that dissenters rights co-
exist with common law causes of action, such as rescission or money damages,
in the context of an action for breach of fiduciary duty or misrepresentation
in a cash-out merger. Shareholders should be aware that due to the enactment
of the PBCL in 1988 it is unclear whether the decision in Herskowitz remains
applicable to dissenters' rights. IN VIEW OF THE COMPLEXITIES OF THESE
PROVISIONS OF PENNSYLVANIA LAW, SHAREHOLDERS WHO ARE CONSIDERING DISSENTING
FROM THE MERGER SHOULD CONSULT THEIR OWN LEGAL COUNSEL.
SEE SCHEDULE III ATTACHED HERETO FOR A REPRODUCTION OF THE TEXT OF THE
RELEVANT SECTIONS OF THE PBCL.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is filed
as an Exhibit to the Schedule 14D-1 filed by Purchaser with the Commission in
connection with the Offer. Such summary is qualified in its entirety by
reference to the Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as practicable after the date thereof, but in no event later than
five business days after the initial public announcement of Purchaser's
intention to commence the Offer. The obligation of Purchaser to accept for
payment and pay for Shares tendered pursuant to the Offer is subject to the
satisfaction of certain conditions that are described in "THE TENDER OFFER--
Section 12. Certain Conditions of the Offer" hereof. Purchaser has agreed that
no change in the Offer may be made which decreases the price per Share payable
in the Offer, which changes the number of Shares to be purchased in the Offer,
which changes the form of the consideration payable in the Offer, which amends
or adds to the conditions to the Offer set forth in "THE TENDER OFFER--Section
12. Certain Conditions of the Offer" or which makes any other change in the
terms or conditions of the Offer which is materially adverse to the holders of
Shares.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with Pennsylvania Law, at the
Effective Time, the Merger Subsidiary will be merged with and into the
Company. The Company will continue as the surviving corporation of the Merger
and will become a direct wholly owned subsidiary of Purchaser. At the
Effective Time, each Share issued and outstanding immediately prior to the
Effective Time held by shareholders (other than any Shares owned directly or
indirectly by Purchaser), shall be cancelled and, subject to dissenters rights
under Pennsylvania law, shall be converted automatically into the right to
receive from the Company the Merger Consideration.
24
<PAGE>
The Merger Agreement provides that the directors of the Merger Subsidiary
immediately prior to the Effective Time will be the initial directors of the
Company and that the officers of the Company immediately prior to the
Effective Time remain officers of the Company. The Merger Agreement provides
that, at the Effective Time, the Articles of Incorporation and Bylaws of the
Company will remain unmodified.
The Merger Agreement provides, in accordance with the requirement of the
Acquisition Agreement that this Offer be a Qualifying Tender Offer (see
"INTRODUCTION"), that immediately prior to the Effective Time, each
outstanding option to purchase Shares (in each case, an "Option"), whether or
not then exercisable, shall be cancelled and each holder of a cancelled Option
shall be entitled to receive an indemnity payment (the "Exercise Amount") in
cash, in consideration for the cancellation of each such Option, at the same
time as the Merger Consideration is received by the holders of Shares, equal
to the product of (i) the number of Shares to be issued upon the exercise of
such Option and (ii) the excess, if any, of the amount paid per Share pursuant
to the Offer over the exercise price per Share previously subject to such
Option. The Merger Agreement also provides that Purchaser and the Company's
Compensation Committee will define, prior to the Effective Time, alternatives
to such treatment of Options, which alternatives may include deferral of the
payment of the Exercise Amount and conversion into options to purchase
securities of Purchaser.
Purchaser or the designated paying agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Merger
Agreement to any holder of Shares and/or Options such amounts that Purchaser
or the paying agent is required to deduct and withhold with respect to the
making of such payment under the United States Internal Revenue Code of 1986,
as amended, the rules and regulations promulgated thereunder or any provision
of state, local or foreign tax law. Purchaser is making no representation
regarding the tax consequences of the treatment of Options described above,
and each holder of Options should consult his or her tax advisor with respect
to such consequences.
Agreements of Purchaser, the Merger Subsidiary and the Company. Pursuant to
the Merger Agreement, the Company shall, in accordance with applicable law and
the Company's Articles of Incorporation and Bylaws, (i) duly call, give notice
of, convene and hold a special meeting of its shareholders as soon as
practicable following consummation of the Offer for the purpose of considering
and taking action on the Merger Agreement and the transactions contemplated
thereby (the "Shareholders' Meeting"), (ii) include in the proxy statement for
the Shareholders' Meeting the recommendation of the Company Board and the
Special Committee that the shareholders of the Company approve and adopt the
Merger Agreement and the transactions contemplated thereby, subject to their
respective fiduciary duties as advised by independent counsel and (iii) use
its reasonable best efforts to obtain such approval and adoption. At the
Shareholders' Meeting, Purchaser shall cause all Shares then owned by it and
its subsidiaries to be voted in favor of the approval and adoption of the
Merger Agreement and the transactions contemplated thereby. Purchaser
currently has sufficient voting power to approve the Merger, even if no other
shareholder votes in favor of the Merger.
The Merger Agreement provides that the Company shall, if required by
applicable law, as soon as practicable following consummation of the Offer,
file a proxy statement with the Commission under the Exchange Act (the "Proxy
Statement"), and shall use its reasonable best efforts to have the Proxy
Statement cleared by the Commission and to cause the Proxy Statement and all
required amendments and supplements thereto to be mailed to the holders of
Shares entitled to vote at the Shareholders' Meeting at the earliest
practicable time.
Pursuant to the Merger Agreement, the Company has covenanted and agreed
that, between the date of the Merger Agreement and the Effective Time, unless
Purchaser shall otherwise agree in writing, the businesses of the Company and
its subsidiaries shall be conducted only in, and the Company and its
subsidiaries shall not take any action, except in the ordinary course of
business and in a manner consistent with past practice; and the Company shall
use its reasonable best efforts to preserve substantially intact the business
organization of the Company and its subsidiaries, to keep available the
services of the current officers, employees and consultants of the Company and
its subsidiaries and to preserve the current relationships of the Company and
its subsidiaries
25
<PAGE>
with customers, suppliers and other persons with which the Company or any of
its subsidiaries has significant business relations.
The Company and Purchaser are each obligated under the Merger Agreement to
give each other prompt notice of (i) the occurrence, or nonoccurrence, of any
event the occurrence, or nonoccurrence, of which would be likely to cause any
representation or warranty contained in the Merger Agreement to be untrue or
inaccurate in any material respect and (ii) any failure of the Company,
Purchaser or the Merger Subsidiary, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it thereunder.
Pursuant to the Merger Agreement, the Company shall, to the fullest extent
permitted under applicable law and regardless of whether the Merger becomes
effective, indemnify and hold harmless, each present and former director,
officer, employee, fiduciary and agent of the Company and each of its
subsidiaries (collectively, the "Indemnified Parties") against all costs and
expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as an
officer, director, employee, fiduciary or agent, whether occurring before or
after the Effective Time, until the expiration of the statute of limitations
relating thereto (and shall pay any expenses in advance of the final
disposition of such action or proceeding to each Indemnified Party to the
fullest extent permitted under Pennsylvania law, upon receipt from the
Indemnified Party to whom expenses are advanced of any undertaking to repay
such advances required under Pennsylvania law). In the event of any such
claim, action, suit, proceeding or investigation, (i) the Company shall pay
the reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to the Company,
promptly after statements therefor are received and (ii) the Company shall
cooperate in the defense of any such matter; provided, however, that the
Company shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld); and provided
further that the Company shall not be obligated to pay the fees and expenses
of more than one counsel (plus appropriate local counsel) for all Indemnified
Parties in any single action except (x) that the persons who served as
directors of the Company who were not designees of Purchaser shall be entitled
to retain one additional counsel (plus appropriate local counsel) to represent
them at the expense of the Company, and (y) to the extent that two or more of
such Indemnified Parties shall have conflicting interests in the outcome of
such action, in which case such additional counsel (including local counsel)
as may be required to avoid any such conflict or likely conflict may be
retained by the Indemnified Parties at the expense of the Company, and
provided further that, in the event that any claim for indemnification is
asserted or made within the period prior to the expiration of the applicable
statute of limitations, all rights to indemnification in respect of such claim
shall continue until the disposition of such claim. All rights pursuant to the
foregoing indemnification provisions of the Merger Agreement are deemed to be
a contract between the Company and each of the Indemnified Parties.
The Merger Agreement provides that the Company shall use its reasonable
efforts to maintain in effect for six years from the Effective Time, if
available, the current directors' and officers' liability insurance policies
maintained by the Company covering those persons who are currently covered by
such policies (provided that the Company may substitute therefor policies of
at least the same coverage containing terms and conditions which are not
materially less favorable) with respect to matters occurring prior to the
Effective Time; provided, however, that in no event shall the Company be
required to expend more than an amount per year equal to 150% of current
annual premiums paid by the Company for such insurance. In the event that, but
for the proviso to the immediately preceding sentence, the Company would be
required to expend more than 150% of current annual premiums, the Company
shall obtain the maximum amount of such insurance obtainable by payment of
annual premiums equal to 150% of current annual premiums. In the event the
Company or any successor or assign (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successor and assign of the
Company, or at Purchaser's option, Purchaser, shall assume the foregoing
indemnification obligations and the
26
<PAGE>
indemnification agreements dated as of July 2, 1997, between the Company and
the members of the Special Committee.
Pursuant to the terms of the Merger Agreement and subject to the conditions
thereof, each of the parties thereto shall (i) use its reasonable best efforts
to take, or cause to be taken, all appropriate action, and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement, including, without limitation, using its reasonable best
efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries as are necessary for the consummation of
the transactions and to fulfill the conditions to the Offer and the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of the Merger Agreement, the proper
officers and directors of each party to the Merger Agreement and the Company
shall use their reasonable best efforts to take all such action.
Pursuant to the Merger Agreement, the parties thereto agreed that the
Acquisition Agreement shall be terminated as of the Effective Time and that
all representations, warranties and agreements between the parties thereto
which, by the terms of such agreement, survive either or both the Closing Date
(as that term is defined in the Acquisition Agreement) or the termination of
such agreement shall all be terminated as of the Effective Time.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations by the Company, Purchaser and the Merger Subsidiary as to the
enforceability of the Merger Agreement and by the Company as to compliance
with law, corporate status and capitalization and the accuracy of financial
statements and filings with the Commission.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions: (a) to the
extent required by Pennsylvania law and the Company's Articles of
Incorporation and Bylaws, the Merger Agreement and the transactions
contemplated thereby shall have been approved and adopted by the affirmative
vote of the shareholders of the Company; (b) no foreign, United States or
state governmental authority or other agency or commission or foreign, United
States or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or
permanent) which is then in effect and has the effect of preventing or
prohibiting consummation of the Merger or the effective operation of the
business of the Company and its subsidiaries after the Effective Time; and (c)
Purchaser or its permitted assignee shall have purchased all Shares validly
tendered and not withdrawn pursuant to the Offer; provided, however, that this
condition shall not be applicable to the obligations of Purchaser or Merger
Subsidiary if, in breach of the Merger Agreement, Purchaser fails to purchase
any Shares validly tendered and not withdrawn pursuant to the Offer.
Termination; Fees and Expenses. The Merger Agreement may be terminated and
the Merger and the other transactions contemplated by the Merger Agreement may
be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval and adoption of the Merger Agreement and the transactions
contemplated thereby by the shareholders of the Company: (a) by mutual written
consent duly authorized by the Boards of Directors of Purchaser, the Merger
Subsidiary and the Special Committee on behalf of the Company; or (b) by
either Purchaser or the Special Committee on behalf of the Company if (i) the
Effective Time shall not have occurred on or before March 31, 1998; provided,
however, that such right to terminate the Merger Agreement shall not be
available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date or (ii) any court of competent
jurisdiction or other governmental authority shall have issued an order,
decree, ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have become final and nonappealable; or (c) by Purchaser (i) if due to an
occurrence or circumstance that would result in a failure to satisfy any
condition to the Offer, Purchaser shall have (A) failed to commence the Offer
within 30 days following the date of the Merger Agreement, (B) terminated the
Offer without having accepted any Shares for payment thereunder or (C) failed
to pay for Shares pursuant to the Offer within 90 days
27
<PAGE>
following the commencement of the Offer, unless such termination or failure to
pay for Shares shall have been caused by or resulted from the failure of
Purchaser or Merger Subsidiary to perform in any material respect any material
covenant or agreement of either of them contained in the Merger Agreement or
the material breach by Purchaser or Merger Subsidiary of any material
representation or warranty of either of them contained in the Merger Agreement
or (ii) if prior to the purchase of Shares pursuant to the Offer, the Special
Committee shall have withdrawn or modified in a manner adverse to Purchaser or
the Merger Subsidiary its approval or recommendation of the Offer, the Merger
Agreement, the Merger or any transaction contemplated by the Merger Agreement
or shall have resolved to do any of the foregoing; or (d) by the Company, upon
approval of the Special Committee, if due to an occurrence or circumstance
that would result in a failure to satisfy any of the conditions to the Offer,
Purchaser shall have (i) failed to commence the Offer within 30 days following
the date of the Merger Agreement, (ii) terminated the Offer without having
accepted any Shares for payment thereunder or (iii) failed to pay for Shares
pursuant to the Offer within 90 days following the commencement of the Offer,
unless such termination or failure to pay for Shares shall have been caused by
or resulted from the failure of the Company to perform in any material respect
any material covenant or agreement of it contained in the Merger Agreement or
the material breach by the Company of any material representation or warranty
of it contained in the Merger Agreement; or (e) by the Company, upon approval
of the Special Committee, (i) if any representation or warranty of Purchaser
and the Merger Subsidiary in the Merger Agreement which is qualified as to
materiality shall not be true and correct or any such representation or
warranty that is not so qualified shall not be true and correct in any
material respect, in each case as if such representation or warranty was made
as of such time on or after the date of the Merger Agreement, or (ii)
Purchaser or the Merger Subsidiary shall have failed to perform in any
material respect any obligation or to comply in any material respect with any
agreement or covenant of Purchaser or the Merger Subsidiary to be performed or
complied with by it under the Merger Agreement. In the event of the
termination of the Merger Agreement, the Merger Agreement shall forthwith
become void.
Except as set forth below, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such fees and expenses, whether or not the
transactions contemplated by the Merger Agreement are consummated.
Amendment and Waiver. The Merger Agreement may be amended in writing by the
parties thereto by or on behalf of their respective Boards of Directors (and
approved by the Special Committee) at any time prior to the Effective Time.
Except as otherwise provided by the Merger Agreement, any party thereto may
(i) extend the time for the performance of any obligation or other act of any
other party thereto, (ii) waive any inaccuracy in the representations and
warranties contained therin and (iii) waive compliance with any agreement or
condition contained therein, other than the Minimum Condition.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
In considering the recommendation of the Company Board and the Special
Committee with respect to the Offer and the Merger, shareholders should be
aware that certain officers and directors of Purchaser and the Company have
interests in the Offer and the Merger which are described below and which may
present them with certain potential conflicts of interest. Currently, of the
thirteen directors of the Company, one is also a director of Purchaser and
three are executive officers of Purchaser. Mr. Jean Marc Bruel, a director of
the Company, is also a Vice-Chairman and a director of Purchaser; Mr. Igor
Landau, a director of the Company, is also a Group President of Purchaser; Mr.
Jean-Pierre Tirouflet, a director of the Company, is also Senior Executive
Group Vice-President of Purchaser; and Mr. Michel de Rosen, Chairman and Chief
Executive Officer of the Company, is also an executive officer of Purchaser.
Mr. Robert E. Cawthorn is a designee of Purchaser to the Company Board,
although Mr. Cawthorn is not an employee of Purchaser. See "SPECIAL FACTORS--
Beneficial Ownership of Common Stock" for information regarding Shares and
options to acquire Shares beneficially owned by certain of Purchaser's
executive officers or directors. See also "Schedule I--Directors and Executive
Officers of Purchaser".
Shareholders also should be aware that Purchaser has certain interests that
present actual or potential conflicts of interest in connection with the Offer
and the Merger. As a result of Purchaser's current ownership of
28
<PAGE>
approximately 68.1% of the issued and outstanding Shares and its nominees
constituting a majority of the Company's directors, Purchaser may be deemed to
control the Company.
The Special Committee and the Board were aware of these actual and potential
conflicts of interest and considered them along with the other matters
described under "SPECIAL FACTORS--Recommendation of the Company Board;
Fairness of the Offer and the Merger".
Purchaser has been advised that Mr. Antoine Jeancourt-Galignani,
representative of Assurance Generales de France on the Purchaser's Board of
Directors, and Messrs. Philippe Desmarescaux, Landau and Michel de Rosen,
executive officers of Purchaser, intend to tender Shares owned by them
pursuant to the Offer. Purchaser has not been advised by any other executive
officers, directors or affiliates of the Company whether any of such persons
intends to tender Shares owned by them pursuant to the Offer.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information, as of August 8, 1997,
regarding the ownership of Common Stock by each person known by the Company to
be the beneficial owner of more than 5% of the issued and outstanding Common
Stock, and any director or executive officer of the Company or Purchaser who
is the beneficial owner of Shares or Options issued by the Company:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO PERCENTAGE OF
OPTIONS ISSUED COMMON STOCK
NUMBER OF SHARES BY THE BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED DIRECTLY COMPANY(1) OWNED
- ------------------------ ---------------- ---------------- -------------
<S> <C> <C> <C>
Purchaser...................... 97,163,370 0 68.1%
Alain Audubert................. 0 6,685 *
Jean-Jacques Bertrand.......... 3,267 64,864 *
John A. Bond................... 0 2,957 *
Robert E. Cawthorn............. 98,620 326,789 *
Richard T. Collier............. 3,000 22,929 *
Stephen P. Connelley........... 1,397 45,645 *
Philippe Desmarescaux.......... 2,863 0 *
Charles-Henri Filippi.......... 2,000 10,000 *
Richard Forrest................ 0 70,256 *
Dale F. Frey................... 0 4,000 *
Claude Helene.................. 0 20,000 *
Antoine Jeancourt-Galignani
(representative of Assurances
Generales de France).......... 210 0 *
Manfred E. Karobath, M.D....... 6,911 140,993 *
Igor Landau.................... 200 20,000 *
Hadia Lefavre.................. 0 1,251 *
Philippe Maitre................ 0 10,702 *
John D. Michelmore............. 7,046 62,155 *
Bernard Reculeau............... 4,040 70,902 *
James S. Riepe................. 864 10,000 *
Michel de Rosen................ 8,629 106,814 *
Timothy G. Rothwell............ 0 15,702 *
S.G. Equities International,
subsidiary of Societe
Generale...................... 5,000 0 *
Societe Generale............... 2,000 0 *
Jean-Pierre Tirouflet.......... 0 20,000 *
</TABLE>
- --------
(1) Certain of the directors and executive officers of Purchaser listed in
Schedule I attached hereto (6 persons in all) have the right to acquire
options to purchase from Purchaser up to an aggregate of 628,500 of the
issued and outstanding Shares which are currently owned by Purchaser and
included in the amount of Shares set forth opposite Purchaser's name
above. Michel de Rosen has the right to acquire options to purchase up to
146,000 of such Shares.
* Represents less than 1%.
29
<PAGE>
BNP Arbitrage, an affiliate of the Banque Nationale de Paris, a director of
Purchaser, has effected the following transactions in Shares during the past 60
days:
<TABLE>
<CAPTION>
AMOUNT
DATE OF SHARES PRICE PER SHARE PLACE OF TRADE TYPE OF TRADE
- ---- --------- --------------- -------------- --------------------
<S> <C> <C> <C> <C>
June 19, 1997.... 200 $78.88 NYSE Open Market Purchase
June 19, 1997.... 500 $79.00 NYSE Open Market sale
June 19, 1997.... 200 $78.88 NYSE Open Market sale
June 19, 1997.... 200 $78.88 NYSE Open Market sale
June 26, 1997.... 1,500 $90.56 NYSE Open Market purchase
June 26, 1997.... 2,500 $91.19 NYSE Open Market purchase
June 26, 1997.... 1,000 $91.06 NYSE Open Market sale
June 26, 1997.... 1,000 $91.00 NYSE Open Market sale
June 26, 1997.... 1,100 $91.06 NYSE Open Market sale
June 27, 1997.... 500 $91.38 NYSE Open Market purchase
June 27, 1997.... 1,000 $91.06 NYSE Open Market sale
June 30, 1997.... 1,000 $90.81 NYSE Open Market purchase
June 30, 1997.... 1,000 $90.81 NYSE Open Market sale
July 1, 1997..... 1,000 $91.19 NYSE Open Market purchase
July 2, 1997..... 600 $92.00 NYSE Open Market purchase
July 2, 1997..... 1,000 $92.13 NYSE Open Market sale
July 3, 1997..... 1,000 $92.25 NYSE Open Market purchase
July 3, 1997..... 1,400 $93.00 NYSE Open Market sale
July 3, 1997..... 200 $92.50 NYSE Open Market sale
July 7, 1997..... 2,300 $93.25 NYSE Open Market purchase
July 7, 1997..... 400 $93.33 NYSE Open Market sale
July 7, 1997..... 100 $93.23 NYSE Open Market sale
July 7, 1997..... 1,000 $93.00 NYSE Open Market sale
July 8, 1997..... 1,000 $93.38 NYSE Open Market purchase
July 9, 1997..... 1,000 $93.63 NYSE Open Market sale
July 9, 1997..... 300 $93.63 NYSE Open Market sale
July 9, 1997..... 500 $93.63 NYSE Open Market sale
July 10, 1997.... 1,600 $93.69 NYSE Open Market purchase
July 10, 1997.... 1,100 $93.75 NYSE Open Market sale
July 10, 1997.... 500 $93.69 NYSE Open Market sale
July 15, 1997.... 500 $93.44 NYSE Open Market purchase
July 17, 1997.... 500 $93.44 NYSE Open Market sale
July 18, 1997.... 400 $92.75 NYSE Open Market purchase
July 18, 1997.... 400 $92.75 NYSE Open Market purchase
July 18, 1997.... 300 $92.75 NYSE Open Market sale
July 18, 1997.... 500 $92.75 NYSE Open Market sale
July 24, 1997.... 2,000 $93.31 NYSE Open Market purchase
July 25, 1997.... 200 $93.38 NYSE Open Market sale
July 25, 1997.... 500 $93.38 NYSE Open Market sale
July 25, 1997.... 1,000 $93.44 NYSE Open Market sale
July 28, 1997.... 300 $93.56 NYSE Open Market sale
July 30, 1997.... 1,000 $94.38 NYSE Open Market purchase
July 30, 1997.... 300 $94.38 NYSE Open Market sale
July 30, 1997.... 700 $94.00 NYSE Open Market sale
</TABLE>
30
<PAGE>
Purchaser has effected the following transactions in Shares during the past
60 days:
<TABLE>
<CAPTION>
AMOUNT
DATE OF SHARES PRICE PER SHARE PLACE OF TRADE TYPE OF TRADE
- ---- --------- --------------- -------------- --------------------------------
<S> <C> <C> <C> <C>
July 15, 1997........... 6,000 $32.125 Private sale Sale pursuant to option exercise
July 30, 1997........... 1,000 $32.125 Private sale Sale pursuant to option exercise
</TABLE>
The Company has not effected any transactions in Shares during the past 60
days. To the best of the Company's knowledge, no officer or director of the
Company has effected any transaction in Shares during the past 60 days.
According to Purchaser's records, since January 1, 1995, the Company and
Purchaser have purchased the following number of Shares at the following
average price per Share:
<TABLE>
<CAPTION>
COMPANY PURCHASER
----------------------- -----------------------
NUMBER OF AVERAGE PRICE NUMBER OF AVERAGE PRICE
SHARES PER SHARE SHARES PER SHARE
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
1995:
First Quarter................. 264 $63.0000 45,800 $40.76
Second Quarter................ 0 0.0000 72,000 41.28
Third Quarter................. 0 0.0000 25,000 44.87
Fourth Quarter................ 237 49.0042 185,585 48.66
1996:
First Quarter................. 1,511 $59.5071 207,500 $59.38
Second Quarter................ 3,143 64.5041 781,500 59.78
Third Quarter................. 192 71.3958 0 0.00
Fourth Quarter................ 102 75.3297 1,406,337 72.69
1997:
First Quarter................. 728 $71.6250 0 $ 0.00
Second Quarter................ 171,035 74.0218 531,436 77.58
Third Quarter (through August
15, 1997).................... 0 0.0000 0 0.00
</TABLE>
RELATED PARTY TRANSACTIONS
Purchaser and its affiliates manage their cash separately. In certain large
countries such as the United States, France, the United Kingdom and Germany,
the local entities have access to Purchaser's cash pooling arrangements
whereby they can, at their own request, lend to or borrow from Purchaser at
market terms and conditions. Amounts receivable from Purchaser and affiliates
totaled $48.9 million and $61.3 million at December 31, 1996 and 1995,
respectively. The 1996 balance included $6.3 million of accounts receivable
from sales of products and services to Purchaser (1995: $8.5 million) and
$39.4 million classified as other current assets (1995: $36.8 million).
Accounts payable related to purchase of materials and services from Purchaser
and affiliates were $16.8 million at December 31, 1996 (1995: $12.2 million);
accrued and other liabilities due to Purchaser at December 31, 1996 were $30.0
million (1995: $20.9 million). In 1996, sales to Purchaser and affiliates were
$31.3 million (1995: $31.1 million). Materials purchased from Purchaser
totaled $38.7 million in 1996 (1995: $41.4 million). At December 31, 1996,
debt to Purchaser and affiliates totaled $259.8 million (1995: $653.0
million). Interest expense incurred with respect to Purchaser indebtedness in
1996 was $22.3 million (1995: $12.4 million). In addition, Purchaser provides
the Company with a $500.0 million medium-term currency facility, with interest
based on London Interbank Offer Rate ("LIBOR") plus a margin, and has
guaranteed certain obligations of the Company under certain joint ventures.
Purchaser charges the Company for expenses incurred on its behalf, including
research, data processing, insurance, legal, tax, advertising, public
relations and management fees. Such charges are reflected in the financial
statements and amounted to approximately $24.0 million in 1996 (1995: $23.6
million). Purchaser believes that the expenses so charged are representative
of amounts that the Company would have incurred if it had been operated as an
unaffiliated entity.
In 1995, the Company acquired from Purchaser the businesses of Cooperation
Pharmaceutique Francaise ("Cooper"), primarily in France, and a
pharmaceuticals business in Brazil for cash and preferred stock of a
31
<PAGE>
subsidiary of the Company aggregating approximately $273.2 million. The
preferred shares, accounted for as minority interest in other liabilities,
have a liquidation preference of approximately FF645.0 million (approximately
$123.1 million) and pay dividends of 7.5% per annum on a stated value of
FF145.0 million. The acquisition agreements call for potential adjustments to
the purchase price of the businesses based on several factors, including
earnings performance.
In December 1995, the Company issued $500.0 million of undated capital
equity notes to Purchaser. The notes have a liquidation preference that ranks
senior to the Shares, but junior to all existing and future Company preferred
stock. Semiannual remuneration on the unpaid principal balance of the equity
notes is based on LIBOR plus a margin and was approximately $35.2 million in
1996. The capital equity notes are redeemable only at the Company's option,
but not earlier than five years after issuance, subject to certain exceptions.
In addition, the Company has entered into various licensing and
confidentiality agreements with Purchaser and its affiliates regarding certain
intellectual property rights.
In the ordinary course of their businesses, Purchaser and the Company engage
in a variety of commercial and financial transactions with several of the
companies (and/or their affiliates) which are represented on the Purchaser
Board (such as the Banque Nationale de Paris, Credit Lyonnais, Credit Suisse
First Boston, Fiat and Societe Generale). These commercial and financial
transactions are conducted on an arm's-length basis in accordance with the
Purchaser's standard business practices.
32
<PAGE>
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept
for payment, and will pay for, all Shares validly tendered prior to the
Expiration Date (as hereinafter defined) and not withdrawn as permitted by
"THE TENDER OFFER--Section 4. Withdrawal Rights". The term "Expiration Date"
means 5:00 p.m., New York City time, on Wednesday, October 1, 1997, unless and
until Purchaser, in its sole discretion (but subject to the terms and
conditions of the Merger Agreement), shall have extended the period during
which the Offer is open, in which event the term "Expiration Date" shall mean
the latest time and date at which the Offer, as so extended by Purchaser,
shall expire.
Purchaser expressly reserves the right, in its sole discretion (but subject
to the terms and conditions of the Merger Agreement), at any time and from
time to time, to extend for any reason the period of time during which the
Offer is open, including the occurrence of any of the conditions specified in
"THE TENDER OFFER--Section 12. Certain Conditions of the Offer", by giving
oral or written notice of such extension to the Depositary. During any such
extension, all Shares previously tendered and not withdrawn will remain
subject to the Offer, subject to the rights of a tendering shareholder to
withdraw such shareholder's Shares. See "THE TENDER OFFER--Section 4.
Withdrawal Rights".
Subject to the applicable regulations of the Commission, Purchaser also
expressly reserves the right, in its sole discretion (but subject to the terms
and conditions of the Merger Agreement), at any time and from time to time,
(i) to delay acceptance for payment of, or, regardless of whether such Shares
were theretofore accepted for payment, payment for, any Shares, pending
receipt of any regulatory approval specified in "THE TENDER OFFER--Section 13.
Certain Legal Matters and Regulatory Approval", (ii) to terminate the Offer
and not accept for payment any Shares upon the occurrence of any of the
conditions, specified in "THE TENDER OFFER--Section 12. Certain Conditions of
the Offer" and (iii) to waive any condition, other than the Minimum Condition,
or otherwise amend the Offer in any respect, by giving oral or written notice
of such delay, termination, waiver or amendment to the Depositary and by
making a public announcement thereof. The Merger Agreement provides that,
without the consent of the Special Committee, Purchaser will not (i) decrease
the price per Share payable in the Offer, (ii) change the number of Shares to
be purchased in the Offer, (iii) change the form of consideration payable in
the Offer, (iv) impose conditions to the Offer in addition to those set forth
in "THE TENDER OFFER--Section 12. Certain Conditions of the Offer" or (v) make
any other change in the terms or conditions of the Offer which is materially
adverse to the holders of Shares. Purchaser acknowledges that (i) Rule 14e-
1(c) under the Exchange Act requires Purchaser to pay the consideration
offered or return the Shares tendered promptly after the termination or
withdrawal of the Offer and (ii) Purchaser may not delay acceptance for
payment of, or payment for (except as provided in clause (i) of the first
sentence of this paragraph), any Shares upon the occurrence of any of the
conditions specified in "THE TENDER OFFER--Section 12. Certain Conditions of
the Offer" without extending the period of time during which the Offer is
open.
Any such extension, delay, termination, waiver or amendment will be followed
as promptly as practicable by public announcement thereof, such announcement
in the case of an extension to be made no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under
the Exchange Act, which require that material changes be promptly disseminated
to shareholders in a manner reasonably designed to inform them of such
changes) and without limiting the manner in which Purchaser may choose to make
any public announcement, Purchaser shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release to the Dow Jones News Service and, in France, to Les
Echos and La Tribune.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will extend the Offer to the extent required by Rules 14d-
4(c), 14d-6(d) and 14e-1 under the Exchange Act.
33
<PAGE>
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should decide to decrease the number of Shares being sought or
to increase or decrease the consideration being offered in the Offer, such
decrease in the number of Share being sought or such increase or decrease in
the consideration being offered will be applicable to all shareholders whose
Shares are accepted for payment pursuant to the Offer and, if at the time
notice of any such decrease in the number of Shares being sought or such
increase or decrease in the consideration being offered is first published,
sent or given to holders of such Shares, the Offer is scheduled to expire at
any time earlier than the period ending on the tenth business day from and
including the date that such notice is first so published, sent or given, the
Offer will be extended at least until the expiration of such ten business day
period. For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or United States federal holiday and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time.
The Company has provided Purchaser with the Company's shareholder list and
security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares whose names appear on
the Company's shareholder list and will be furnished, for subsequent
transmittal to beneficial owners of Shares, to brokers, dealers, commercial
banks, trust companies, and similar persons whose names, or the names of whose
nominees, appear on the shareholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject
to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment),
Purchaser will accept for payment, and will pay for, all Shares validly
tendered prior to the Expiration Date and not properly withdrawn, promptly
after the latest to occur of (i) the Expiration Date and (ii) the satisfaction
or waiver of the conditions to the Offer set forth in "THE TENDER OFFER--
Section 12. Certain Conditions of the Offer". Subject to applicable rules of
the Commission, Purchaser expressly reserves the right to delay acceptance for
payment of, or payment for, Shares pending receipt of any regulatory approvals
specified in "THE TENDER OFFER--Section 13. Certain Legal Matters and
Regulatory Approvals" or in order to comply in whole or in part with any other
applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (A)
the certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company or the
Philadelphia Depositary Trust Company (each, a "Book-Entry Transfer Facility"
and, collectively, the "Book-Entry Transfer Facilities") pursuant to the
procedures set forth in "THE TENDER OFFER--Section 3. Procedures for Accepting
the Offer and Tendering Shares", (B) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees or, in the case of a book-entry transfer, an Agent's Message (as
defined below) in lieu of the Letter of Transmittal and (C) any other
documents required under the Letter of Transmittal.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary or the French Depositary of Purchaser's acceptance for payment of
such Shares pursuant to the Offer. Upon the terms and subject to the
conditions of the Offer, payment for Shares accepted for payment pursuant to
the Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering shareholders for the purpose
of receiving payments from Purchaser and transmitting such payments to
tendering shareholders whose Shares have been accepted for payment. Under no
circumstances will interest on the purchase price for Shares be paid,
regardless of any delay in making such payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are
submitted evidencing more Shares than are tendered, Share Certificates
evidencing unpurchased Shares will be returned, without expense to the
tendering shareholder (or, in the case of Shares tendered by book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility
pursuant to the procedure set forth in "THE TENDER OFFER--Section 3.
Procedures for Accepting the Offer and
34
<PAGE>
Tendering Shares", such Shares will be credited to an account maintained at
such Book-Entry Transfer Facility), as promptly as practicable following the
expiration or termination of the Offer.
If, prior to the Expiration Date, Purchaser shall increase the consideration
offered to any holders of Shares pursuant to the Offer, such increased
consideration shall be paid to all holders of Shares that are purchased
pursuant to the Offer, whether or not such Shares were tendered prior to such
increase in consideration.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates, the right to purchase all or
any portion of the Shares tendered pursuant to the Offer, but any such
transaction or assignment will not relieve Purchaser of its obligations under
the Offer and will in no way prejudice the rights of tendering shareholders to
receive payment for Shares validly tendered and accepted for payment pursuant
to the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES. In order for a
holder of Shares validly to tender Shares in the United States pursuant to the
Offer, the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees (or, in the
case of a book-entry transfer, an Agent's Message in lieu of the Letter of
Transmittal) and any other documents required by the Letter of Transmittal,
must be received by the Depositary at one of its addresses set forth on the
back cover of this Offer to Purchase and either (i) the Share Certificates
evidencing tendered Shares must be received by the Depositary at such address
or such Shares must be tendered pursuant to the procedure for book-entry
transfer described below and a Book-Entry Confirmation must be received by the
Depositary (including an Agent's Message if the tendering shareholder has not
delivered a Letter of Transmittal), in each case prior to the Expiration Date,
or (ii) the tendering shareholder must comply with the guaranteed delivery
procedures described below. The term "Agent's Message" means a message,
transmitted by a Book-Entry Transfer Facility to, and received by, the
Depositary and forming a part of a Book-Entry Confirmation which states that
such Book-Entry Transfer Facility has received an express acknowledgment from
the participant in such Book-Entry Transfer Facility tendering the Shares
which are the subject of such book-entry confirmation, that such participant
has received and agrees to be bound by the terms of the Letter of Transmittal
and that Purchaser may enforce such agreement against such participant.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book-Entry Transfer. The Depositary will establish accounts with respect to
the Shares at the Book-Entry Transfer Facilities for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the system of any Book-Entry
Transfer Facility may make a book-entry delivery of Shares by causing such
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at such Book-Entry Transfer Facility in accordance with such Book-
Entry Transfer Facility's procedures for such transfer. However, although
delivery of Shares may be effected through book-entry transfer at a Book-Entry
Transfer Facility, either the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, together with any required signature
guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and
any other required documents, must, in any case, be received by the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date, or the tendering shareholder must comply with
the guaranteed delivery procedure described below. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member of the Medallion Signature Guarantee
Program, or by any other "eligible guarantor institution", as such
35
<PAGE>
term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing
referred to as an "Eligible Institution"), except in cases where Shares are
tendered (i) by a registered holder of Shares who has not completed either the
box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If a Share Certificate is registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be made, or a Share Certificate not accepted for payment or not tendered is to
be returned, to a person other than the registered holder(s), then the Share
Certificate must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear
on the Share Certificate, with the signature(s) on such Share Certificate or
stock powers guaranteed by an Eligible Institution. See Instructions 1 and 5
of the Letter of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and the Share Certificates evidencing such shareholder's Shares are
not immediately available or such shareholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such shareholder cannot complete the procedure for
delivery by book-entry transfer on a timely basis, such Shares may
nevertheless be tendered, provided that all the following conditions are
satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, is
received prior to the Expiration Date by the Depositary as provided below;
and
(iii) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together
with the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, with any required signature guarantees, and any other
documents required by the Letter of Transmittal are received by the
Depositary within three NYSE trading days after the date of execution of
such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the
form of Notice of Guaranteed Delivery made available by Purchaser.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Purchaser also reserves the absolute right to waive any
condition of the Offer or any defect or irregularity in the tender of any
Shares of any particular shareholder, whether or not similar defects or
irregularities are waived in the case of other shareholders. No tender of
Shares will be deemed to have been validly made until all defects and
irregularities have been cured or waived. None of Purchaser, the Dealer
Manager, the Co-Dealer Manager, the Depositary, the Information Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Purchaser's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will
be final and binding.
Other Requirements. By executing the Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution,
36
<PAGE>
in the manner set forth in the Letter of Transmittal, to the full extent of
such shareholder's rights with respect to the Shares tendered by such
shareholder and accepted for payment by Purchaser (and with respect to any and
all other Shares or other securities issued or issuable in respect of such
Shares on or after August 19, 1997). All such proxies shall be considered
coupled with an interest in the tendered Shares. Such appointment will be
effective when, and only to the extent that, Purchaser accepts such Shares for
payment. Upon such acceptance for payment, all prior proxies given by such
shareholder with respect to such Shares (and such other Shares and securities)
will be revoked without further action, and no subsequent proxies may be given
nor any subsequent written consent executed by such shareholder (and, if given
or executed, will not be deemed to be effective) with respect thereto. The
designees of Purchaser will, with respect to the Shares for which the
appointment is effective, be empowered to exercise all voting and other rights
of such shareholder as they in their sole discretion may deem proper at any
annual or special meeting of the Company's shareholders or any adjournment or
postponement thereof, by written consent in lieu of any such meeting or
otherwise. Purchaser reserves the right to require that, in order for Shares
to be deemed validly tendered, immediately upon Purchaser's payment for such
Shares, Purchaser must be able to exercise full voting rights with respect to
such Shares.
The acceptance for payment by Purchaser of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering shareholder and Purchaser upon the terms and subject to the
conditions of the Offer.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO
CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH
SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH
SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY
COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP
WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE DEPOSITARY IS REQUIRED
TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER. SEE INSTRUCTION 9 OF
THE LETTER OF TRANSMITTAL.
4. WITHDRAWAL RIGHTS. Tenders of the Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after October 21,
1997. If Purchaser extends the Offer, is delayed in its acceptance for payment
of Shares or is unable to accept Shares for payment pursuant to the Offer for
any reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares,
and such Shares may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as described in this Section 4.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to
Purchase. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder of such Shares, if different from that
of the person who tendered such Shares. If Share Certificates evidencing
Shares to be withdrawn have been delivered or otherwise identified to the
Depositary, then, prior to the physical release of such Share Certificates,
the serial numbers shown on the such Share Certificates must be submitted to
the Depositary and the signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution, unless such Shares have been tendered
for the account of an Eligible Institution. If Shares have been tendered
pursuant to the procedure for book-entry transfer as set forth in "THE TENDER
OFFER--Section 3. Procedures for Accepting the Offer and Tendering Shares",
any notice of withdrawal must specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Purchaser, the Dealer
Manager, the Co-Dealer Manager, the Depositary, the Information Agent or any
other person will be under duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
37
<PAGE>
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "THE TENDER OFFER--Section 3. Procedures for Accepting
the Offer and Tendering Shares".
5. CERTAIN U.S. FEDERAL AND FRENCH INCOME TAX CONSEQUENCES. U.S. Federal
Income Tax. The receipt of cash for Shares pursuant to the Offer or in the
Merger will be a taxable transaction for U.S. federal income tax purposes
under the Code and may also be a taxable transaction under applicable state,
local or foreign tax laws. In general, a shareholder will recognize gain or
loss for U.S. federal income tax purposes equal to the difference between the
amount of cash received in exchange for the Shares sold and such shareholder's
adjusted tax basis in such Shares. Assuming the Shares constitute capital
assets in the hands of the shareholder, such gain or loss will be capital gain
or loss and, in the case of an individual shareholder, will be taxable at
various preferential rates depending on the extent to which such shareholder's
holding period for the Shares tendered pursuant to the Offer or converted
pursuant to the Merger exceeds one year. Gain or loss will be calculated
separately for each block of Shares tendered pursuant to the Offer or
converted pursuant to the Merger. The deduction of capital losses is subject
to certain limitations. Prospective investors should consult their own tax
advisors in this regard.
In general, in order to prevent backup federal income tax withholding at a
rate of 31% on the cash consideration to be received in the Offer or pursuant
to the Merger, each shareholder who is not otherwise exempt from such
requirements must provide such shareholder's correct taxpayer identification
number (and certain other information) by completing the Substitute Form W-9
in the Letter of Transmittal.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
SHAREHOLDERS, INCLUDING BROKER-DEALERS, SHAREHOLDERS WHO ACQUIRED SHARES
PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS
COMPENSATION, INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES AND FOREIGN CORPORATIONS.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW, WHICH IS SUBJECT TO
CHANGE POSSIBLY WITH RETROACTIVE EFFECT. SHAREHOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER
AND THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE
ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
French Income Tax. The receipt of cash for Shares pursuant to the Offer or
in the Merger will be a taxable transaction for French tax purposes for French
tax residents. In general, a resident of France for tax purposes who is a
shareholder will recognize gain or loss for French tax purposes equal to the
difference between the amount of cash received in exchange for the Shares sold
and such shareholder's tax basis in such Shares. French resident individuals
will generally be subject to tax in France at a rate of 20.9% if their sales
of securities exceed FF 100,000 in 1997. Capital losses can be offset against
capital gains of the same nature, but such deduction is subject to certain
limitations. No assurance is provided as to whether the indemnity paid to
shareholders in connection with the Merger will be subject to treatment as
capital gains tax. French resident corporations will generally be subject to
tax at the effective rate of 36 2/3%, as ordinary income, unless the Shares
were held in a special participation account for more than two years, in which
case the rate is reduced to an effective rate of 20.9%. The French government
has announced that the rate of ordinary corporate income tax will be increased
to 41.6% for gain recognized in 1997 for corporations with sales of FF 50
million or more.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN SHAREHOLDERS,
INCLUDING SHAREHOLDERS WHO ACQUIRED SHARES PURSUANT TO THE EXERCISE OF
EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, OR WHOSE PARTICIPATION IN
THE COMPANY IS AT LEAST EQUAL TO THE EQUIVALENT OF FF 150 MILLION.
THE FRENCH INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW, WHICH IS SUBJECT TO CHANGE
POSSIBLY WITH RETROACTIVE EFFECT. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE
MERGER TO THEM.
38
<PAGE>
6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and principally
traded on the NYSE under the symbol "RPR". The following table sets forth, for
the quarters indicated, the high and low prices per Share on NYSE as reported
by the Dow Jones News Service and the quarterly dividends paid per Share:
<TABLE>
<CAPTION>
DIVIDEND
NYSE: HIGH LOW PAID
----- ---- ---- --------
<S> <C> <C> <C>
1995:
First Quarter.................................... $43 1/2 $35 7/8 $ .30
Second Quarter................................... 43 1/4 40 1/8 .30
Third Quarter.................................... 45 7/8 40 3/8 .30
Fourth Quarter................................... 54 1/2 43 3/4 .30
1996:
First Quarter.................................... $66 7/8 $50 1/2 $ .30
Second Quarter................................... 69 1/4 58 .32
Third Quarter.................................... 77 3/4 62 1/8 .32
Fourth Quarter................................... 80 1/2 66 .32
1997:
First Quarter.................................... $78 1/8 $70 1/8 $ .32
Second Quarter................................... 91 9/16 68 .32
Third Quarter (through August 21, 1997).......... 96 1/8 90 3/4 --
</TABLE>
On June 25, 1997, the last full trading day prior to the public announcement
of Purchaser's consideration of a possible business combination with the
Company, the closing price per Share as reported on the NYSE was $79 7/16. On
August 19, 1997, the last full trading day prior to announcement of the
commencement of the Offer, the closing price per Share as reported on the NYSE
was $95 1/8.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. Except as otherwise set forth
herein, the information concerning the Company contained in this Offer to
Purchase, including financial information, has been furnished by the Company
or has been taken from or based upon publicly available documents and records
on file with the Commission and other public sources. Purchaser assumes no
responsibility for the accuracy or completeness of the information concerning
the Company furnished by the Company or contained in such documents and
records or for any failure by the Company to disclose events which may have
occurred or may affect the significance or accuracy of any such information
but which are unknown to Purchaser.
General. The Company is a Pennsylvania corporation with its principal
offices located at 500 Arcola Road, Collegeville, Pennsylvania 19426. The
Company is primarily engaged in the discovery, development, manufacture and
marketing of a broad line of pharmaceutical products for human use.
Financial Information. Set forth below is certain selected financial
information relating to the Company which has been excerpted or derived from
the audited financial statements contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 (the "Form 10-K") and
the unaudited financial statements contained in the Company's June 30 Form 10-
Q. More comprehensive financial information is included in the Form 10-K and
the Company's June 30 Form 10-Q and other documents filed by the Company with
the Commission. The financial information that follows is qualified in its
entirety by reference to such reports and other documents may be examined and
copies may be obtained from the offices of the Commission in the manner set
forth below. In addition, Schedules IV and V hereto set forth the Company's
audited financial statements for the fiscal year ended December 31, 1996 and
the Company's unaudited financial statements for the period ended June 30,
1997, respectively.
39
<PAGE>
RHONE-POULENC RORER INC.
SELECTED FINANCIAL INFORMATION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ --------------------
1997 1996 1996 1995
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $2,323.8 $2,618.5 $5,420.6 $5,142.1
Cost of products sold.............. 691.4 878.0 1,666.0 1,746.4
Selling, delivery and administra-
tive expenses..................... 946.2 1,046.7 2,109.7 1,863.7
Research and development expenses.. 405.2 414.3 882.1 766.2
Restructuring and other charges.... -- -- 102.6 126.5
-------- -------- -------- --------
Operating income................. 281.0 279.5 660.2 639.3
Interest expense, net.............. 76.2 84.5 169.6 84.9
Other (income) expense, net........ (20.8) (77.4) (199.8) 16.4
-------- -------- -------- --------
Income before income taxes....... 225.6 272.4 690.4 538.0
Provision for income taxes......... 70.1 85.2 216.9 181.5
-------- -------- -------- --------
Net income....................... 155.5 187.2 473.5 356.5
Dividends on preferred stock and
remunerations on capital
equity notes...................... 21.9 21.3 44.8 18.7
-------- -------- -------- --------
Net income available to common
shareholders.................... $ 133.6 $ 165.9 $ 428.7 $ 337.8
======== ======== ======== ========
PER SHARE DATA:
Average number of shares issued and
outstanding during period(1)....... 137.0 135.3 135.8 134.2
Primary earnings per common share.. $ .98 $ 1.23 $ 3.16(2) $ 2.50(3)
======== ======== ======== ========
</TABLE>
- --------
(1) Does not include shares held in the Company's treasury or Employee Benefits
Trust.
(2) Net income available to common shareholders.
(3) Net income available to common shareholders, pro forma.
40
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
------------------ -------------------
1997 1996 1996 1995
-------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
ASSETS
Cash and cash equivalents............. $ 114.4 $ 60.9 $ 100.6 $ 115.4
Cash pooling arrangements with Rhone-
Poulenc S.A.......................... 4.2 10.4 3.2 16.0
Short-term investments and notes re-
ceivable............................. 63.1 66.7 38.7 --
Trade accounts receivable, less re-
serves............................... 858.6 870.6 984.1 956.8
Inventories........................... 796.7 832.8 800.7 765.6
Other current assets.................. 762.3 797.1 846.2 935.8
-------- -------- --------- --------
Total current assets.............. 2,599.3 2,638.5 2,773.5 2,789.6
Time deposits, at cost................ 128.4 83.0 128.4 83.0
Property, plant and equipment, net of
accumulated depreciation............. 1,426.5 1,556.5 1,525.9 1,621.0
Goodwill, net of accumulated amortiza-
tion................................. 2,601.0 2,836.9 2,739.0 2,953.5
Intangibles, net of accumulated amor-
tization............................. 707.4 849.2 766.7 866.8
Other assets.......................... 839.1 769.1 834.6 673.2
-------- -------- --------- --------
Total assets...................... $8,301.7 $8,733.2 $ 8,768.1 $8,987.1
======== ======== ========= ========
LIABILITIES
Short-term debt....................... $ 157.9 $ 414.6 126.7 511.8
Accounts payable...................... 427.1 529.8 594.7 601.8
Other current liabilities............. 1,109.4 1,143.4 1,331.5 1,291.5
-------- -------- --------- --------
Total current liabilities......... 1,694.4 2,087.8 2,052.9 2,405.1
Long-term debt........................ 2,432.0 2,415.2 2,272.0 2,159.0
Notes payable to Rhone-Poulenc S.A.
and affiliates....................... 187.9 249.5 253.0 525.4
Deferred income taxes................. 241.6 363.1 218.0 365.5
Other liabilities, including minority
interests............................ 1,208.4 1,201.5 1,322.4 1,174.9
-------- -------- --------- --------
Total liabilities................. $5,764.3 $6,317.1 $ 6,118.3 $6,629.9
======== ======== ========= ========
SHAREHOLDERS' EQUITY
Money market preferred stock without
par value (liquidation preference
$100,000 per share); authorized,
issued and outstanding 1,750 shares.. 175.0 175.0 175.0 175.0
Capital equity notes.................. 500.0 500.0 500.0 500.0
Common stock, without par value;
stated value $1 per share;
authorized 600,000,000 shares........ 142.6 141.0 141.6 139.5
Capital in excess of stated value..... 273.9 204.2 234.8 153.2
Retained earnings..................... 1,883.8 1,662.3 1,837.9 1,580.3
Employee Benefits Trust............... (198.1) (185.7) (185.7) (185.7)
Cumulative translation adjustments.... (239.8) (80.7) (53.8) (5.1)
-------- -------- --------- --------
Total shareholders' equity........ 2,537.4 2,416.1 2,649.8 2,357.2
-------- -------- --------- --------
Total liabilities and sharehold-
ers' equity...................... $8,301.7 $8,733.2 $ 8,768.1 $8,987.1
======== ======== ========= ========
</TABLE>
Company Budget Information and Financial Projections. The Company does not,
as a matter of course, make public forecasts or projections as to future
sales, earnings or other income statement data. However, in connection with
Purchaser's review of the transactions contemplated by the Offer and the
Merger, Purchaser examined certain projections prepared by the Company. See
"SPECIAL FACTORS--Company Budget Information and Financial Projections".
41
<PAGE>
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file periodic
reports, proxy statements and other information with the Commission relating
to its business, financial condition and other matters. Information as of
particular dates concerning the Company's directors and officers, their
remuneration, stock options granted to them, the principal holders of the
Company's securities and any material interest of such persons in transactions
with the Company is required to be disclosed in proxy statements distributed
to the Company's shareholders and filed with the Commission. Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048 and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Information regarding the public reference facilities may be
obtained from the Commission by telephoning 1-800-SEC-0330. The Company's
filings are also available to the public on the SEC Internet site
(http://www.sec.gov.). Copies of such materials may also be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Certain reports and other
information concerning the Company may also be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
8. CERTAIN INFORMATION CONCERNING PURCHASER AND THE MERGER
SUBSIDIARY. Purchaser is a societe anonyme organized under the laws of the
Republic of France. Its principal offices are located at 25, quai Paul Doumer,
92408 Courbevoie Cedex, France. Purchaser and its affiliates comprise one of
the leading groups worldwide in life sciences and specialty chemicals.
The Merger Subsidiary is a Pennsylvania corporation established on August
18, 1997 and has not carried on any activities other than the execution of the
Merger Agreement. Its principal offices are located at Twelfth Floor, Packard
Building, 111 South 15th Street, Philadelphia, Pennsylvania 19102-2678. The
Merger Subsidiary is a direct wholly owned subsidiary of Purchaser.
The name, citizenship, business address, principal occupation or employment
and five-year employment history for each of the directors and executive
officers of Purchaser and the Merger Subsidiary and certain other information
are set forth in Schedule I hereto.
Purchaser owns 97,163,370 Shares, representing approximately 68.1% of the
142,687,492 Shares issued and outstanding at July 31, 1997.
Except as described in this Offer to Purchase, (i) none of Purchaser, the
Merger Subsidiary, nor, to the best knowledge of Purchaser and the Merger
Subsidiary, any of the persons listed in Schedule I to this Offer to Purchase
or any associate or majority-owned subsidiary of Purchaser or the Merger
Subsidiary or any of the persons so listed beneficially owns or has any right
to acquire, directly or indirectly, any Shares and (ii) none of Purchaser, the
Merger Subsidiary, nor, to the best knowledge of Purchaser and the Merger
Subsidiary, any of the persons or entities referred to above nor any director,
executive officer or subsidiary of any of the foregoing has effected any
transaction in the Shares during the past 60 days.
Except as provided in the Merger Agreement or as otherwise described in this
Offer to Purchase, none of Purchaser, the Merger Subsidiary nor, to the best
knowledge of Purchaser and the Merger Subsidiary, any of the persons listed in
Schedule I to this Offer to Purchase, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting
of such securities, finder's fees, joint ventures, loan or option
arrangements, puts or call, guarantees of loans, guaranties against loss,
guaranties of profits, division of profits or loss or the giving or
withholding of proxies. Except as set forth in this Offer to Purchase, since
January 1, 1995, none of Purchaser, the Merger Subsidiary nor, to the best
knowledge of Purchaser and the Merger Subsidiary, any of the persons listed on
Schedule I hereto, has had any business relationship or transaction with the
Company or any of its executive officers, directors or affiliates that is
required to be reported under the rules and regulations of the Commission
applicable to the Offer. Except as
42
<PAGE>
set forth in this Offer to Purchase, since January 1, 1995, there have been no
contacts, negotiations or transactions between Purchaser or any of their
subsidiaries or, to the best knowledge of Purchaser, any of the persons listed
in Schedule I to this Offer to Purchase, on the one hand, and the Company or
its affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
Purchaser is subject to the informational reporting requirements of the
Exchange Act applicable to foreign private issuers, and in accordance
therewith files reports, including annual reports on Form 20-F, and other
information with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the Commission's regional offices located at Seven World Trade Center, Suite
1300, New York, New York 10048, and the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Information regarding the public
reference facilities may be obtained from the Commission by telephoning 1-800-
SEC-0330. Copies of such materials may also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Certain reports and other
information concerning the Purchaser may also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
9. FINANCING OF THE OFFER AND THE MERGER. The total amount of funds required
by Purchaser to consummate the Offer and the Merger and to pay related fees
and expenses is estimated to be approximately $4.8 billion. Purchaser has
entered into binding term sheets with Societe Generale, Banque Nationale de
Paris, Credit Lyonnais and Union Bank of Switzerland regarding multicurrency
credit facilities pursuant to which it intends to borrow up to an aggregate of
approximately FF8.5 billion and $850 million of unsecured indebtedness
maturing in less than one year. The all-in cost of such drawn short-term
indebtedness ranges from 0.10% to 0.125% over LIBOR or Paris Interbank Offer
Rate ("PIBOR"). Purchaser has entered into binding term sheets with the
following banks creating multicurrency credit facilities pursuant to which it
intends to borrow up to an aggregate of approximately FF12.75 billion and $230
million of unsecured indebtedness maturing in five years: Societe Generale,
Banque Nationale de Paris, Natexis, Banque Paribas, Credit Agricole Indosuez,
Bayerische Landesbank, Caisse Centrale des Banques Populaires, Royal Bank of
Canada, Credit Commercial de France, Credit Commercial et Industriel de Paris,
Midland Bank plc, Credit Lyonnais, Citibank, N.A. and Union Bank of
Switzerland. The all-in cost of such drawn medium-term indebtedness ranges
from 0.17% to 0.20% over LIBOR or PIBOR. The balance will be drawn on existing
credit facilities.
Purchaser may also use funds from its working capital and/or its affiliates'
working capital, or from existing undrawn credit facilities. The decision as
to the allocation of funding among existing or anticipated credit facilities
and working capital will be made based on Purchaser's review from time to time
of the advisability of particular actions, as well as on prevailing interest
rates and financial and other economic conditions and such other factors as
Purchaser may deem appropriate.
Purchaser anticipates that any indebtedness incurred through borrowings
under the credit facilities listed above will be repaid from a variety of
sources, which may include, but may not be limited to, funds generated
internally by Purchaser and its affiliates (including, following the Merger,
funds generated by the Company), bank refinancing, and the public or private
sale of debt or equity securities. Purchaser intends to repay a portion of the
indebtedness related to the Offer from proceeds of a public offering of shares
of the Purchaser to be commenced, market conditions permitting, following the
successful completion of the Offer. Purchaser expects the proceeds of such
offering to be approximately FF 7 billion (which is currently approximately
$1.155 billion). In addition, Purchaser expects to make a public offering of
shares of NewChemco in 1998, subject to, among other things, market
conditions, and to make dispositions of certain non-strategic assets. The
source and allocation of various methods of repayment will be determined and
may be modified by Purchaser based on market conditions and such other factors
as Purchaser may deem appropriate.
43
<PAGE>
10. DIVIDENDS AND DISTRIBUTIONS. If, on or after August 19, 1997, the
Company should declare or pay any dividend on the Shares or make any other
distribution (including the issuance of additional shares of capital stock
pursuant to a stock dividend or stock split, the issuance of other securities
or the issuance of rights for the purchase of any securities) with respect to
the Shares that is payable or distributable to shareholders of record on a
date prior to the transfer to the name of Purchaser or its nominee or
transferee on the Company's stock transfer records of the Shares pursuant to
the Offer, then, without prejudice to Purchaser's rights under "THE TENDER
OFFER--Section 12. Certain Conditions of the Offer", (i) the purchase price
per Share payable by Purchaser pursuant to the Offer will be reduced (subject
to the Merger Agreement) to the extent any such dividend or distribution is
payable in cash and (ii) any non-cash dividend, distribution or right shall be
received and held by the tendering shareholder for the account of Purchaser
and will be required to be promptly remitted and transferred by each tendering
shareholder to the Depositary for the account of Purchaser, accompanied by
appropriate documentation of transfer. Pending such remittance and subject to
applicable law, Purchaser will be entitled to all the rights and privileges as
owner of any such non-cash dividend, distribution or right and may withhold
the entire purchase price or deduct from the purchase price the amount or
value thereof, as determined by Purchaser in its sole discretion.
11. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; THE NYSE, THE PARIS
BOURSE AND EXCHANGE ACT REGISTRATION. The Purchase of Shares by Purchaser
pursuant to the Offer will reduce the number of Shares that might otherwise
trade publicly and will reduce the number of holders of Shares, which could
adversely affect the liquidity and market value of the remaining Shares held
by the public.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the standards for continued inclusion in the NYSE or
the Paris Bourse.
According to the NYSE's published guidelines, the Shares would not be
eligible to be included for listing if, among other things, the number of
Shares publicly held falls below 600,000, the number of holders of Shares
falls below 1,200 (holding at least 100 Shares) or the aggregate market value
of such publicly held Shares does not exceed $5,000,000. If, as a result of
the purchase of Shares pursuant to the Offer, the Merger or otherwise, the
Shares no longer meet the requirements of the NYSE for continued listing, and
the listing of the Shares might be discontinued and, in such event, the market
for the Shares could be adversely affected. According to the Paris Bourse's
published regulations, a number of factors would be considered in determining
whether the Shares would no longer be eligible for listing, including whether
(i) the market capitalization of the Shares listed on the Paris Bourse is less
than FF 50 million at year-end, (ii) the Shares are traded less than every two
trading days and (iii) the average daily trading volume is less than one
hundred Shares. In the event the Shares were no longer eligible for listing on
the NYSE or the Paris Bourse, quotations might still be available from other
sources. The extent of the public market for the Shares and the availability
of such quotations would, however, depend upon the number of holders of such
Shares remaining at such time, the interest in maintaining a market in such
Shares on the part of securities firms, the possible termination of
registration of such Shares under the Exchange Act as described below and
other factors.
The Shares are currently "margin securities", as such term is defined under
the rules of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of
allowing brokers to extend credit on the collateral of such securities.
Depending upon factors similar to those described above regarding listing and
market quotations, following the Offer it is possible that the Shares might no
longer constitute "margin securities" for purposes of the margin regulations
of the Federal Reserve Board, in which event such Shares could no longer be
used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the
Commission if the Shares are not listed on a national securities exchange and
there are fewer than 300 record holders. The termination of the registration
of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to holders of Shares and
to the Commission and would make certain provisions of the Exchange Act, such
as the short-swing profit recovery provisions of Section 16(b), the
requirement of furnishing a proxy statement in connection with
44
<PAGE>
shareholders' meetings and the requirements of Rule 13e-3 under the Exchange
Act with respect to the "going private" transactions, no longer applicable to
the Shares. In addition, "affiliates" of the Company and persons holding
"restricted securities" of the Company may be deprived of the ability to
dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended. If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be "margin
securities" or be eligible for NYSE reporting. Purchaser currently intends to
seek to cause the Company to terminate the registration of the Shares under
the Exchange Act as soon as practicable after consummation of the Offer if the
requirements for termination of registration are met.
12. CERTAIN CONDITIONS OF THE OFFER. Purchaser shall not accept for payment
any Shares tendered pursuant to the Offer unless such number of the then
issued and outstanding Shares, other than the Purchaser Shares, which, when
taken together with the Purchaser Shares, constitutes at least 90% of the then
issued and outstanding Shares, shall have been validly tendered and not
withdrawn prior to the expiration of the Offer (the "Minimum Condition").
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or pay, subject to the applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act,
for any Shares tendered pursuant to the Offer, and may terminate or amend the
Offer to the extent expressly provided in the Merger Agreement and may
postpone the acceptance for payment of and payment for Shares tendered, if (i)
the Minimum Condition shall not have been satisfied or (ii) at any time on or
after the date of the Merger Agreement, and prior to the acceptance for
payment of Shares, any of the following conditions shall exist:
(a) there shall have been instituted or be pending any action or
proceeding by any Governmental Entity (as defined in the Merger Agreement)
(i) challenging or seeking to make illegal, materially delay or otherwise
directly or indirectly restrain or prohibit or make materially more costly
the making of the Offer, the acceptance for payment of, or payment for, any
Shares by Purchaser or any other affiliate of Purchaser or the consummation
of any other transaction contemplated by the Merger Agreement, (ii) seeking
to prohibit or limit materially the ownership or operation by the Company,
Purchaser or any of their subsidiaries of all or any material portion of
the business or assets of the Company or any of its subsidiaries, or to
compel the Company, Purchaser or any of their subsidiaries to dispose of or
hold separate all or any material portion of the business or assets of the
Company or any of its subsidiaries, as a result of the transaction
contemplated by the Merger Agreement, (iii) seeking to impose or confirm
limitations on the ability of Purchaser or any other affiliate of Purchaser
to exercise effectively full rights of ownership of any Shares, including,
without limitation, the right to vote any Shares acquired by Purchaser
pursuant to the Offer or otherwise on all matters properly presented to the
Company's shareholders, including, without limitation, the approval and
adoption of the Merger Agreement and the Merger, (iv) seeking to require
divestiture by Purchaser or any other affiliate of Purchaser of any Shares,
or (v) which otherwise has a Material Adverse Effect (as defined in the
Merger Agreement) on the Company.
(b) there shall have been any order or injunction issued, or any Law (as
defined in the Merger Agreement) enacted, entered, enforced, promulgated,
amended, issued or deemed applicable to Purchaser, the Company or any
subsidiary or affiliate of Purchaser or the Company which has resulted, or
is reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any change, condition, event or development
that has a Material Adverse Effect;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities of the Company on the NYSE
or the Paris Bourse; (ii) any general suspension of, or limitation on
prices for, trading in equity securities on the Paris Bourse; (iii) any
decline, measured from the date hereof, in the Standard & Poor's 500 Index
by an amount in excess of 20%; (iv) any change in currency exchange rates,
measured from the close of business on August 19, 1997, resulting in an
increase of 15% or more in the Per Share Amount (as defined in the Merger
Agreement) as translated from United States Dollars into French Francs; (v)
a declaration of a banking moratorium or any suspension of payments in
respect of banks
45
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PURCHASER AND THE MERGER SUBSIDIARY
1. Directors and Executive Officers of Purchaser. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Purchaser. Unless otherwise indicated, the
current business address of each person is Rhone-Poulenc S.A., 25, quai Paul
Doumer, 92408 Courbevoie Cedex, France. Unless otherwise indicated, each such
person is a citizen of France.
A. DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ---------------------------- -------------------------------------------
<S> <C>
Jean-Rene Fourtou....... Director, Chairman of the Board and Chief Executive Of-
ficer of Rhone-Poulenc S.A. (since 1986); Director of
Rhone-Poulenc Japan, Rhone-Poulenc Limited, Rhone-
Poulenc Quimica S.A., Air France, The Equitable, Axa
Assurances Iard, Axa Assurance Vie Mutuelle, Axa Assur-
ance Vie, Axa Iard Mutuelle, Midi Participations, As-
surance Iard Mutuelle, Alpha Assurance Vie, Alpha As-
surance Vie Mutuelle, Uni Europe Assurance Mutuelle,
Schneider S.A., Societe Generale and Pernod Ricard;
Vice-President of the Supervisory Board of Axa UAP;
Member of the Supervisory Board of Gerot Holding A.G.
and the Supervisory Board of Casino.
Jean-Marc Bruel......... Director of Rhone-Poulenc S.A. (since December 1993),
Institut Merieux S.A., Rhone-Poulenc Rorer Inc., Rhone-
Poulenc Japan, Rhone Poulenc Quimica, Sita, V.E.V.,
Wilson Gestion and Ecole Centrale des Arts et des Manu-
factures de Paris; Vice Chairman of Rhone-Poulenc (su-
pervises Quality, Safety and Environmental Protection,
Industrialization and South American and Asian-Pacific
operations) (since November 1992); Chairman of Rhone-
Poulenc China and Fondation Vilette-Entreprises; Member
of the Supervisory Board of Banque Paribas and the Ex-
ecutive Committee of Institut de Protection et de
Surete Nucleaire.
Serge Kampf............. Director of Rhone-Poulenc S.A. (since March 1993), Cap
c/o Cap Gemini Sogeti Gemini America (U.S.A.), Cap Gemini Holding Inc.
11, rue Tilsit (U.S.A.), Gemini Consulting Holding Ltd (U.K.), Hoskyns
75017 Paris, France Group plc (U.K.), Cap Gemini France S.A., Cap Gemini
Telecom S.A. and Gemini Consulting Holding S.A.; Chair-
man and Chief Executive Officer of Cap Gemini Sogeti
(business management consulting) (since January 1975);
Chief Executive Officer of Cap Gemini (Switzerland)
S.A., Gemini Consulting Holding BV, Gemini Consulting
Inc. (Delaware) and Cap Gemini Service S.A.; Managing
Director of Cap Gemini Europe BV and Cap Gemini Benelux
BV; Cap Gemini S.A.'s representative on the Board of
Cap Gemini Universite S.A. and the Board of Cap Gemini
Innovation S.A.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ---------------------------- -------------------------------------------
<S> <C>
Alain Merieux........... Director of Rhone-Poulenc S.A. (since 1986), Compagnie
c/o Institut Merieux Generale d'Industrie et de Participation S.A. and Com-
S.A. pagnie Plastic Omnium S.A.; Chairman and Chief Execu-
17, rue Bourgelat tive Officer of Institut Merieux S.A. (research and de-
69002 Lyon, France velopment in biology, medicine and pharmaceuticals)
(since July 1965), Biomerieux S.A., Biomerieux Alliance
S.A. and Transgene S.A.
Didier Pineau- Director of Rhone-Poulenc S.A. (since January 1997),
Valencienne............. Compagnie Generale d'Industrie et de Participation
c/o Schneider S.A. (CGIP) (since 1992), Equitable (USA) (since 1991) and
64-70, avenue J.B. Sema Group plc (United Kingdom) (since 1990); Chairman
Clement and Chief Executive Officer of Schneider S.A.
92646 Boulogne- (industrial/electric) (since 1981), Schneider Electric
Billancourt Cedex, S.A. and Square D; Member of the European Advisory
France Board of Bankers Trust Company (USA) (since 1990), the
Advisory Board of Booz Allen & Hamilton (since 1992),
the Supervisory Committee of AXA-UAP (since 1990), the
Supervisory Board of Banque Paribas (since 1989) and
the Advisory Committee of Banque de France (since
1989).
Michel Renault.......... Director of Rhone-Poulenc S.A. (since March 1993),
c/o Credit Lyonnais Aerospatiale, Albatros Investissement, Bertrand Faure,
19, boulevard des D.M.C. (Dollfus Mieg & Cie) and V.E.V. S.A.; Chief Ex-
Italiens ecutive Officer of Credit Lyonnais (banking) (since
75001 Paris, France September 1992); Chairman of Slivam, Consortium
Auxiliaire de Participations, Credit Lyonnais Europe
S.A., Credit Lyonnais Espana (since 1995) and the Su-
pervisory Board of Bfg Bank A.G. (since 1995); Credit
Lyonnais' representative on the Board of Clinvest, the
Board of Credito Bergamasco (since 1995), the Board of
Groupe Flo and the Supervisory Board of Lagardere
Groupe.
Assurances Generales de
France, represented by
Antoine Jeancourt- Assurances Generales de France: Director of Rhone-
Galignani............... Poulenc S.A (since March 1993), AGF-IART (since June
c/o Assurances Generales 1996), Comptoir des Entrepreneurs (since June 1996),
de France Eustache (since February 1997), AGF 2X (since 1997) and
87, rue de Richelieu Credit National (since 1997); Member of the Supervisory
75060 Paris Cedex 02, Board of Euler (since November 1996) and the Supervi-
France sory Board of Worms & Cie (since December 1995).
Antoine Jeancourt-Galignani: Assurances Generales de
France's representative on the Board of Rhone-Poulenc
(since February 1994), the Board of Credit National and
the Board of Euler; Chairman and Chief Executive Offi-
cer of Assurances Generales de France (insurance)
(since January 1994), Chairman and Chief Executive Of-
ficer of Banque Indosuez (1979-1993), AGF Internation-
al, AGF-IART, AGF-Vie and Compagnie Financiere du Phe-
nix; Director of Bouygues, Societe Generale, Total, and
Kaufman and Broad Home Corporation Los Angeles; Chair-
man of the Supervisory Board of Euro Disney SCA; Member
of the Supervisory Board of Compagnie Financiere de
Paribas, the Supervisory Board of Aachener u. Munchener
(AMB), Aix la Chapelle and the Supervisory Board of
Pinault-Printemps-Redoute.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ---------------------------- -------------------------------------------------------
<S> <C>
Banque Nationale de
Paris, represented by Banque National de Paris: Director of Rhone-Poulenc
Baudouin Prot........... S.A. (Since April 1994), Director and Member of the Su-
c/o Banque Nationale de pervisory Board of a large number of companies.
Paris
16, boulevard des
Italiens
75009 Paris, France
Baudouin Prot: Banque Nationale de Paris' representa-
tive on the Board of Rhone-Poulenc S.A. (since December
1996); President of Banque Nationale de Paris (banking)
(since September 1996); Chairman of the Board of Compa-
gnie Immobiliere de France; Chairman of the Supervisory
Board of Meunier Promotion; Director of Banque
Nationale de Paris Intercontinentale, BNP U.K. Holdings
Limited, Pechiney and Banque de Bretagne; Member of the
Supervisory Board and Banque pour l'Expansion
Industrielle (Banexi); Banque Nationale de Paris' rep-
resentative on the Board of Lucia and the Supervisory
Board of Accor.
Credit Suisse First
Boston, a Swiss
corporation, represented Credit Suisse First Boston: Director of Rhone-Poulenc
by Rudolph Hug.......... S.A. (since December 1993).
c/o Credit Suisse
Uetlbergstrasse 231
8001 Zurich, Switzerland
Rudolph Hug: Director of Rhone-Poulenc S.A. (since De-
cember 1993); President of Credit Suisse (through
1996); Director of Credit Suisse First Boston Aktien-
gesellschaft Frankfurt, Krupp Hoesch Maschinenbau GmbH
Essen, Siemens Beteiligungen AG Zurich, Societe Inter-
nationale Pirelli S.A. Bale, Societe Internationale
Saint-Gobain Fribourg and Sulzer S.A. Winterthour; Mem-
ber of the Executive Board and Credit Suisse Zurich
(banking) (since 1987); President of Credit Suisse
(Luxembourg) S.A. Luxembourg, Credit Suisse First Bos-
ton Canada Toronto and Credit Suisse First Boston (Mos-
cow) Limited Moscow.
Fiat France S.A.,
represented by Giorgio Fiat France S.A.: Director of Rhone-Poulenc S.A. (since
Frasca.................. December 1993) and Europ Assistance S.A.
c/o Societe Fiat France
140, avenue des Champs-
Elysees
75008 Paris, France
Giorgio Frasca: Fiat France S.A.'s representative on
the Board of Europ Assistance S.A. (since 1994) and the
Board of Rhone-Poulenc S.A. (since December 1993);
Chairman and Chief Executive Officer of Fiat France
S.A. (automobiles) (since 1984) and Iveco France S.A.;
Director of Le Continent & Le Continent Vie, Magneti
Marelli France, Saint Louis and Ufima; La Stampa
S.p.A.'s representative on the Board of Le Monde Presse
S.A.; Member of the Coordination Committee of Fiat
S.p.A.
Societe Financiere et
Immobiliere, Marcel
Dassault, represented by Financiere et Immobiliere Marcel Dassault: Director of
Philippe Hustache....... Rhone-Poluenc S.A. (since April 1994), Electricite et
c/o Societe Financiere Eaux de Madagascar and Genset.
et Immobiliere
Marcel Dassault
9, rond-point des
Champs-Elysees
75008 Paris, France
Philippe Hustache: Director of Rhone-Poulenc S.A.
(since June 1995); President and Director of Societe
Financiere et Immobiliere Marcel Dassault (real estate
management) (since April 1994); Chief Executive Officer
of EIF Aquitaine S.A. (1988-1994); Director of
Transgene, Banque Odier Bungener Courvoisier (OBC),
Sanofi, Societe Centrale d'Investissement (SCI),
Dassault Electronique, Banque Vernes and Compagnie
Nationale Porte-Feuille (CNP) Belgium; Societe
Financiere et Immobiliere Marcel Dassault's representa-
tive on the Board of Kapt and Kapt Aquitaine.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ---------------------------- -------------------------------------------------------
<S> <C>
Societe Generale,
represented by Marc Societe Generale: Director of Rhone-Poulenc S.A. (since
Vienot.................. December 1993), Bertrand Faure, Credit General
c/o Societe Generale Industriel, Europe Computer Systeme Finextel, Union
Tour Societe Generale Immobiliere de France, Genefim, Klepierre, Salvepar,
92972 Paris La Defense Sefimeg, Silic and TF1; Member of the Supervisory Board
Cedex, France of Accor, the Supervisory Board of Siparex and the Su-
pervisory Board of Worms & Cie.
Marc Vienot: Societe Generale's representative on the
Board of Rhone-Poulenc S.A. (since December 1993);
Chairman and Chief Executive Officer of Societe
Generale (banking) (since 1986); Director of Associa-
tion Francaise des Banques, Association Francaise des
Entreprises Privees, Alcatel Alsthom, Association
Nationale des Societes par Actions (A.N.S.A.), Compa-
gnie Generale des Eaux, Havas and Societe Generale
Marocaine de Banques; Societe Generale's representative
on the Board of TF1; Member of Conseil National du
Credit.
Jean Eldin.............. Director of Rhone-Poulenc S.A. (since June 1994); Em-
ployee of Rhone-Poulenc S.A. (since 1953).
Pierre Houche........... Director of Rhone-Poulenc S.A. (since June 1994); Em-
ployee of Rhone-Poulenc S.A. (since 1970).
Alain Magnanelli........ Director of Rhone-Poulenc S.A. (since June 1994); Em-
ployee of Rhone-Poulenc S.A. (since 1961).
</TABLE>
B. EXECUTIVE OFFICERS
Purchaser's current executive officers and certain biographical information
concerning such individuals are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ---------------------------- -------------------------------------------------------
<S> <C>
Jean-Rene Fourtou....... Director, Chairman of the Board and Chief Executive Of-
ficer of Rhone-Poulenc S.A. (since 1986); Director of
Rhone-Poulenc
Japan, Rhone-Poulenc Limited, Rhone-Poulenc Quimica
S.A., Air France, The Equitable, Axa Assurances Iard,
Axa Assurance Vie Mutuelle, Axa Assurance Vie, Axa Iard
Mutuelle, Midi Participations, Assurance Iard Mutuelle,
Alpha Assurance Vie, Alpha Assurance Vie Mutuelle, Uni
Europe Assurance Mutuelle, Schneider S.A., Societe
Generale and Pernod Ricard; Vice-President of the Su-
pervisory Board of Axa UAP; Member of the Supervisory
Board of Gerot Holding A.G. and the Supervisory Board
of Casino.
Jean-Marc Bruel......... Director of Rhone-Poulenc S.A. (since December 1993),
Institut Merieux S.A., Rhone-Poulenc Rorer Inc., Rhone-
Poulenc Japan, Rhone Poulenc Quimica, Sita, V.E.V.,
Wilson Gestion and Ecole Centrale des Arts et des Manu-
factures de Paris; Vice Chairman of Rhone-Poulenc (su-
pervises Quality, Safety and Environmental Protection,
Industrialization and South American and Asian-Pacific
operations) (since November 1992); Chairman of Rhone-
Poulenc China and Fondation Vilette-Entreprises; Member
of the Supervisory Board of Banque Paribas and the Ex-
ecutive Committee of Institut de Protection et de
Surete Nucleaire.
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ---------------------------- -------------------------------------------------------
<S> <C>
Philippe Desmarescaux... Group President (since December 1992), supervises the
Chemical segment, Research and Development and North
American operations (since January 1995); Chairman and
Director of Rhone-Poulenc Inc.; Director of Rhone-
Poulenc Japan, Groupe Seb S.A., SNPE, Societe Francaise
de Chimie and Universite Catholique de Lyon; Chairman
of the Board of Institut de Chimie et de Physique de
Lyon and the Board of Ecole Normale Superieure de Lyon;
Vice-Chairman of Ecole de Chimie, Physique and
Electronique de Lyon.
Alain Godard............ Chairman of Animal and Plant Health segment (January
1997); Chief Executive Officer, Agro Segment (1992-
1996); Director of Rhone-Poulenc Animal Nutrition,
Merial, Centre de Cooperation Internationale en Recher-
che Agronomique pour le Developpement and Institut Na-
tional de la Recherche Agronomique.
Igor Landau............. Group President. (Supervises the Pharmaceuticals seg-
ment, Corporate Communication and operations in the Eu-
ropean Union and the European Free Trade Association)
(since December 1992); Director of Rhone-Poulenc Rorer,
Pasteur Merieux Serums & Vaccins Institut Merieux; Mem-
ber of the Supervisory Board of Rhodia AG, Institut de
Developpement Industriel and Rhone-Poulenc Limited.
Rene Penisson........... Group Senior Vice President Human Resources (since
1990); Director of Rhone-Poulenc Fibres & Polymeres
S.A. (since 1994) and Rhone-Poulenc Japan, Ltd.
Martin Pinot............ Executive Vice President of the Chemical segment and
President of the segment's European Zone (since March
1997), President of Fibers and Polymers segment (1993-
February 1997).
Michel de Rosen......... Chairman of Rhone-Poulenc Rorer Inc. (since 1996);
c/o Rhone-Poulenc Rorer Chief Executive Officer of Rhone-Poulenc Rorer Inc.
Inc. (since 1995), President of Rhone-Poulenc Rorer Inc.
500 Arcola Road (1993-1996), President of Fibers and Polymers Segment
Collegeville, (1988-1993).
Pennsylvania 19426-0107
USA
Jean-Pierre Tirouflet... Group Executive Vice President (since November 1992);
President of the Fibers and Polymers segment, Group Fi-
nance, Corporate Strategy and Development, Control, In-
formation Systems and Legal Functions, and Interna-
tional Affairs, the Garden Care division and operations
in Central and Eastern Europe and the CIS; Director of
Rhone-Poulenc Fibres & Polymeres, Rhone-Poulenc Inc.,
Rhone-Poulenc Chemicals Asia Pacific Pte Ltd, Rhone-
Poulenc Rorer Inc., Rhone-Poulenc Viscosuisse (starting
September 1997), Institut Merieux (since April 1994)
and Objectif Rendement (since June 1986); Member of Su-
pervisory Board of Cecar (since December 1993), Super-
visory Board of Cap Gemini (since May 1996) and Super-
visory Board of Indosuez (since March 1996).
</TABLE>
I-5
<PAGE>
2. Directors and Executive Officers of the Merger Subsidiary. The following
table sets forth the name, current business address, citizenship and present
principal occupation or employment, and material occupations, positions,
offices or employments and business addresses thereof for the past five years
of each director and executive officer of the Merger Subsidiary. Unless
otherwise indicated, the current business address of each person is c/o Rhone-
Poulenc S.A., 25, quai Paul Doumer, 92408 Courbevoie Cedex, France.
A. DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ---------------------------- -------------------------------------------
<S> <C>
Igor Landau............. Sole Director; Group President of Purchaser (since De-
cember 1992); Director of Rhone-Poulenc Rorer, Pasteur
Merieux Serums & Vaccins, Institut Merieux; Member of
the Supervisory Board of Rhodia AG, Institut de
Developpement Industriel and Rhone-Poulenc Limited.
Citizen of France.
</TABLE>
B. EXECUTIVE OFFICERS
The Merger Subsidiary's current executive officers and certain biographical
information concerning such individuals are set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ---------------------------- -------------------------------------------
<S> <C>
Igor Landau............. President; Group President of Purchaser (since December
1992); Director of Rhone-Poulenc Rorer, Pasteur Merieux
Serums & Vaccins, Institut Merieux; Member of the Su-
pervisory Board of Rhodia AG, Institut de Developpement
Industriel and Rhone-Poulenc Limited. Citizen of
France.
Harold Frederick Secretary and Treasurer; Executive Vice President and
Boardman, Jr. ......... General Counsel of Rhone-Poulenc Inc. (since February
1996); Vice President and General Counsel of Hoffman
LaRoche Inc. (since January 1989). Citizen of the
United States of America.
</TABLE>
I-6
<PAGE>
SCHEDULE II
Goldman, Sachs & Co. | 85 Broad Street | New York, New York 10004
Tel: 212-902-1000
PERSONAL AND CONFIDENTIAL [LOGO OF
GOLDMAN SACHS]
August 19, 1997
Special Committee of the Board of Directors
Rhone-Poulenc Rorer Inc.
500 Arcola Road
Collegeville, PA 19426
Gentleman:
You have requested our opinion as to the fairness to the holders, other than
Rhone-Poulenc S.A. ("Rhone-Poulenc") and its subsidiaries, (the "Public
Shareholders") of the outstanding shares of Common Stock without par value
(the "Common Shares") of Rhone-Poulenc Rorer, Inc. (the "Company") of the
$97.00 per Common Share in cash proposed to be paid to the Public Shareholders
by Rhone-Poulenc in the Tender Offer (as defined below) and the Merger (as
defined below) pursuant to the Agreement and Plan of Merger dated as of August
19, 1997 among Rhone-Poulenc, RP Vehicle, Inc., a wholly owned subsidiary of
Rhone-Poulenc, and the Company (the "Agreement").
The Agreement provides for a tender offer (the "Tender Offer") for all of
the issued and outstanding Common Shares pursuant to which Rhone-Poulenc will
pay $97.00 per Common Share in cash for each Common Share accepted. The
Agreement further provides that following completion of the Tender Offer,
Merger Sub will be merged with and into the Company (the "Merger") and each
issued and outstanding Common Share (other than Common Shares owned directly
or indirectly by Rhone-Poulenc) will be converted into the right to receive
$97.00 in cash.
We have been informed that as of the date hereof Rhone-Poulenc is the holder
of approximately 68.1% of the outstanding Common Shares. The Common Shares
held by Rhone-Poulenc were acquired pursuant to the Acquisition Agreement
between Rhone-Poulenc and Rorer Group Inc. (the predecessor name of the
Company), dated as of March 12, 1990 (the "Acquisition Agreement"). We have
also been informed that a standstill provision contained in the Acquisition
Agreement expired on July 31, 1997.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with the Company, having acted as the financial
advisor to the Special Committee of the Board of Directors of the Company in
connection with, and having participated in certain of the negotiations
leading to, the Agreement. In the course of the trading activities of Goldman,
Sachs & Co. prior to our retention in connection with this matter, the Firm
accumulated a long position of 828,962 Common Shares.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1996; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management.
We have held discussions with members of the senior management of the Company
regarding its past and current business operations, financial condition and
future prospects. We also have held discussions with members of the senior
management of Centeon L.L.C., a joint venture in which the Company has a 50%
interest, regarding its past and current business operations, financial
condition and future prospects. In
II-1
<PAGE>
addition, we have reviewed the reported price and trading activity for the
Common Shares, compared certain financial and stock market information for the
Company with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the pharmaceutical industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities of
the Company or any of its subsidiaries and we have not been furnished with any
such evaluation or appraisal. We were not requested or authorized to solicit,
and did not solicit, interest from any party with respect to an acquisition of
the outstanding Common Shares, the Company or its constituent businesses. Our
advisory services and the opinion expressed herein are provided for the
information and assistance of the Special Committee of the Board of Directors
of the Company in connection with its consideration of the transactions
contemplated by the Agreement and such opinion does not constitute a
recommendation as to whether any holder of Common Shares should tender such
Common Shares in the Tender Offer.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the $97.00
per Common Share in cash to be received by the Public Shareholders in the
Tender Offer and the Merger is fair to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ----------------------
(GOLDMAN, SACHS & CO.)
II-2
<PAGE>
SCHEDULE III
SECTIONS 1930(A) AND 1571-80
(SUBCHAPTER OF CHAPTER 15)
OF THE PENNSYLVANIA BUSINESS CORPORATION LAW
SECTION 1930. DISSENTERS RIGHTS
(A) GENERAL RULE. -- If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of
merger or consolidation objects to the plan of merger or consolidation and
complies with the provisions of Subchapter D of Chapter 15 (relating to
dissenters rights), the shareholder shall be entitled to the rights and
remedies of dissenting shareholders therein provided, if any. See also section
1906(c) (relating to dissenters rights upon special treatment).
CHAPTER 15
SUBCHAPTER D. -- DISSENTERS RIGHTS
SECTION 1571. APPLICATION AND EFFECT OF SUBCHAPTER
(A) GENERAL RULE. -- Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from,
and to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special exchanges).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(B) EXCEPTIONS. --
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting
at which a plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listing on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders; shall not have
the right to obtain payment of the fair value of any such shares under
this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares.
III-1
<PAGE>
(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all shareholders of
the class to vote thereon and require for the adoption of the plan or
the effectuation of the transaction the affirmative vote of a majority
of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming the liabilities of the
other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless
of the fact, if it be the case, that the acquisition was accomplished by
the issuance of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect a majority or more of
the directors of the corporation.
(C) GRANT OF OPTIONAL DISSENTERS RIGHTS. -- The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(D) NOTICE OF DISSENTERS RIGHTS. -- Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall
be included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(E) OTHER STATUTES. -- The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters
rights.
(F) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE. -- This subchapter may not
be relaxed by any provision of the articles.
(G) CROSS REFERENCES. -- See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to a de facto transaction doctrine
abolished) and 2512 (relating to dissenters rights procedure).
SECTION 1572. DEFINITIONS
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation for
the purposes of this subchapter. The successor corporation in a division shall
have sole responsibility for payments to dissenters and other liabilities
under this subchapter except as otherwise provided in the plan of division.
"DISSENTER." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"FAIR VALUE." The fair value of shares immediately before the effectuation
of the corporation action to which the dissenter objects, taking into account
all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
III-2
<PAGE>
"INTEREST." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
SECTION 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS
(A) RECORD HOLDERS OF SHARES. -- A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses
the name and address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(B) BENEFICIAL OWNERS OF SHARES. -- A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the
corporation not later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not dissent with
respect to some but less than all shares of the same class or series owned by
the owner, whether or not the shares so owned by him are registered in his
name.
SECTION 1574. NOTICE OF INTENTION TO DISSENT
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect
no change in the beneficial ownership of his shares from the date of such
filing continuously through the effective date of the proposed action and must
refrain from voting his shares in approval of such action. A dissenter who
fails in any respect shall not acquire any right to payment of the fair value
of his shares under this subchapter. Neither a proxy nor a vote against the
proposed corporate action shall constitute the written notice required by this
section.
SECTION 1575. NOTICE TO DEMAND PAYMENT
(A) GENERAL RULE. -- If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the
corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of
the plan or other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(B) TIME FOR RECEIPT OF DEMAND FOR PAYMENT. -- The time set for receipt of
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
III-3
<PAGE>
SECTION 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(A) EFFECT OF FAILURE OF SHAREHOLDER TO ACT. -- A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(B) RESTRICTION ON UNCERTIFICATED SHARES. -- If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms
of section 1577(a) (relating to failure to effectuate corporate action).
(C) RIGHTS RETAINED BY SHAREHOLDER. -- The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
SECTION 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES
(A) FAILURE TO EFFECTUATE CORPORATE ACTION. -- Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand for payment.
(B) RENEWAL OF NOTICE TO DEMAND PAYMENT. -- When the uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(C) PAYMENT OF FAIR VALUE OF SHARES. -- Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or give written
notice that no remittance under this section will be made. The remittance or
notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(D) FAILURE TO MAKE PAYMENT. -- If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any such
uncertificated shares that such demand has been made. If shares with respect
to which notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred uncertificated
shares shall bear a similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such shares shall
not acquire by such transfer any rights in the corporation other than those
that the original dissenter had after making demand for payment of their fair
value.
SECTION 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES
(A) GENERAL RULE. -- If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
III-4
<PAGE>
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the
fair value of his shares, he may send to the corporation his own estimate of
the fair value of the shares, which shall be deemed a demand for payment of
the amount or the deficiency.
(B) EFFECT OF FAILURE TO FILE ESTIMATE. -- Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the
corporation.
SECTION 1579. VALUATION PROCEEDINGS GENERALLY
(A) GENERAL RULE. -- Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the
shares be determined by the court.
(B) MANDATORY JOINDER OF DISSENTERS. -- All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served
on each such dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or pursuant to 42
Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(C) JURISDICTION OF THE COURT. -- The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(D) MEASURE OF RECOVERY. -- Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(E) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION. -- If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file
an application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not
previously remitted.
SECTION 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS
(A) GENERAL RULE. -- The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, vexatious or in bad faith.
(B) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD FAITH
APPEAR. -- Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the
III-5
<PAGE>
requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds
that the party against whom the fees and expenses are assessed acted in bad
faith or in a dilatory, obdurate, arbitrary or vexatious manner in respect to
the rights provided by this subchapter.
(C) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS. -- If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefitted.
III-6
<PAGE>
SCHEDULE IV
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Rhone-Poulenc Rorer Inc.:
We have audited the accompanying consolidated balance sheets of Rhone-
Poulenc Rorer Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rhone-Poulenc
Rorer Inc. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- -------------------------------------
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
January 22, 1997
IV-1
<PAGE>
AUDITED FINANCIAL STATEMENTS (AND RELATED NOTES) FOR THE COMPANY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1996
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
RESTATED
1996 1995 1994
---------- ---------- -------------
<S> <C> <C> <C>
Net sales.................................. $ 5,420.6 $ 5,142.1 $ 4,486.6
Cost of products sold...................... 1,666.0 1,746.4 1,555.8
Selling, delivery and administrative
expenses.................................. 2,109.7 1,863.7 1,605.8
Research and development expenses.......... 882.1 766.2 606.1
Restructuring and other charges............ 102.6 126.5 121.2
---------- ---------- ----------
Operating income......................... 660.2 639.3 597.7
Interest expense........................... 212.7 105.2 55.3
Interest income............................ (43.1) (20.3) (8.2)
Gain on sales of assets.................... (110.7) (49.5) (46.2)
Other (income) expense, net................ (89.1) 65.9 83.9
---------- ---------- ----------
Income before income taxes............... 690.4 538.0 512.9
Provision for income taxes................. 216.9 181.5 145.8
---------- ---------- ----------
Net income............................... 473.5 356.5 367.1
Dividends on preferred stock and
remuneration on capital equity notes...... 44.8 18.7 19.2
---------- ---------- ----------
Net income available to common
shareholders............................ $ 428.7 $ 337.8 $ 347.9
========== ========== ==========
Primary earnings per common share:
Net income available to common
shareholders............................ $ 3.16
==========
Net income available to common
shareholders, pro forma................. $ 2.50 $ 2.50
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
IV-2
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents.................................. $ 100.6 $ 115.4
Cash pooling arrangements with Rhone-Poulenc S.A........... 3.2 16.0
Short-term investments..................................... 38.7 --
Trade accounts receivable less reserves of $111.3 (1995:
$87.3).................................................... 984.1 956.8
Inventories................................................ 800.7 765.6
Assets held for sale....................................... 1.0 228.8
Other current assets....................................... 845.2 707.0
-------- --------
Total current assets................................... 2,773.5 2,789.6
Time deposits, at cost..................................... 128.4 83.0
Property, plant and equipment, net......................... 1,525.9 1,621.0
Goodwill, net.............................................. 2,739.0 2,953.5
Intangibles, net........................................... 766.7 866.8
Other assets............................................... 834.6 673.2
-------- --------
Total assets........................................... $8,768.1 $8,987.1
======== ========
LIABILITIES
Current:
Short-term debt............................................ $ 119.9 $ 384.2
Notes payable to Rhone-Poulenc S.A. & affiliates........... 6.8 127.6
Accounts payable........................................... 594.7 601.8
Income taxes payable....................................... 110.5 91.0
Accrued employee compensation.............................. 153.2 137.8
Other current liabilities.................................. 1,067.8 1,062.7
-------- --------
Total current liabilities.............................. 2,052.9 2,405.1
Long-term debt............................................. 2,272.0 2,159.0
Notes payable to Rhone-Poulenc S.A. & affiliates........... 253.0 525.4
Deferred income taxes...................................... 218.0 365.5
Other liabilities, including minority interests............ 1,322.4 1,174.9
-------- --------
Total liabilities...................................... 6,118.3 6,629.9
-------- --------
Contingencies..............................................
SHAREHOLDERS' EQUITY
Money market preferred stock, without par value
(liquidation preference $100,000 per share); issued and
outstanding: 1,750 shares................................. 175.0 175.0
Capital equity notes....................................... 500.0 500.0
Common stock, without par value; stated value $1 per share;
authorized 600,000,000 shares; issued and outstanding:
136,615,917 shares (1995: 134,528,487 shares)............. 141.6 139.5
Capital in excess of stated value.......................... 234.8 153.2
Retained earnings.......................................... 1,837.9 1,580.3
Employee Benefits Trust.................................... (185.7) (185.7)
Cumulative translation adjustments......................... (53.8) (5.1)
-------- --------
Total shareholders' equity............................. 2,649.8 2,357.2
-------- --------
Total liabilities and shareholders' equity............. $8,768.1 $8,987.1
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
IV-3
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
RESTATED
1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 473.5 $ 356.5 $ 367.1
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 339.0 225.2 193.2
Provision for deferred income taxes.... (61.1) (15.8) (67.5)
Deferred royalty income................ 200.6 (24.0) 24.0
Gain on sales of assets................ (110.7) (49.5) (46.2)
Reassessment of asset carrying values.. 102.6 25.4 30.6
(Increase) decrease in trade accounts
receivable, net....................... (71.3) (35.2) 47.3
Increase in inventories................ (116.8) (104.1) (37.6)
Increase in accounts payable........... 26.7 83.5 19.6
Increase (decrease) in income taxes
payable............................... (24.9) (81.4) 13.3
Restructuring charges (payments), net.. (125.9) 3.5 68.3
Noncash (income) losses of equity
affiliates, net....................... (11.7) 35.4 21.1
Other items, net....................... (117.3) 82.4 52.2
----------- ----------- ---------
Net cash provided by operating
activities.......................... 502.7 501.9 685.4
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Assets sold.............................. 462.7 86.2 143.8
Capital expenditures..................... (341.6) (281.5) (229.9)
Sales/prepayments of investments and
product rights.......................... 147.1 34.2 18.8
Purchases of investments and product
rights.................................. (96.0) (154.0) (26.8)
Businesses acquired, net of cash acquired
of $474.7 in 1995....................... (30.0) (2,763.3) --
Net investment hedging, net.............. (1.8) (14.8) (29.8)
----------- ----------- ---------
Net cash provided by (used in)
investing activities................ 140.4 (3,093.2) (123.9)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net............... (364.1) 420.3 (223.1)
Proceeds from issuance of long-term
debt.................................... 2,256.0 2,231.3 67.9
Repayment of long-term debt.............. (2,393.9) (173.0) (47.4)
Shares repurchased for Employee Benefits
Trust................................... -- -- (109.9)
Dividends and remuneration paid.......... (215.9) (179.9) (170.7)
Issuance of capital equity notes......... -- 500.0 --
Redemption of Market Auction Preferred
Shares.................................. -- (225.0) --
Issuances of common stock................ 78.1 14.0 2.6
----------- ----------- ---------
Net cash provided by (used in)
financing activities................ (639.8) 2,587.7 (480.6)
----------- ----------- ---------
Effect of exchange rate changes on cash.. (18.1) .2 2.5
----------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents............................. (14.8) (3.4) 83.4
Cash and cash equivalents at beginning of
year.................................... 115.4 118.8 35.4
----------- ----------- ---------
Cash and cash equivalents at end of
year.................................... $ 100.6 $ 115.4 $ 118.8
=========== =========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
CASH PAID DURING YEAR FOR:
Interest, net of amounts capitalized... $ 133.7 $ 99.2 $ 61.7
Income taxes........................... $ 302.7 $ 259.3 $ 201.0
RECONCILIATION OF ASSETS ACQUIRED AND
LIABILITIES ASSUMED:
Fair value of assets acquired.......... $ -- $ 4,505.2 $ 280.1
Liabilities assumed.................... -- (1,348.2) (173.0)
----------- ----------- ---------
Net assets acquired.................. $ -- $ 3,157.0 $ 107.1
=========== =========== =========
Cash paid for acquisitions............. $ -- $ 3,238.0 $ --
Capital contribution from RP S.A....... -- (273.2) 107.1
Preferred stock of subsidiary issued... -- 131.6 --
Other non-cash items................... -- 60.6 --
----------- ----------- ---------
Total consideration.................. $ -- $ 3,157.0 $ 107.1
=========== =========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
IV-4
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Accounting
The Company's consolidated financial statements are prepared on a basis in
conformity with U.S. generally accepted accounting principles ("U.S. GAAP").
The preparation of the financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. Certain prior year items have been reclassified to conform to
current classifications.
Principles of Consolidation
The consolidated financial statements include the accounts of Rhone-Poulenc
Rorer Inc. and subsidiaries which are more than 50 percent owned and/or
controlled. All subsidiaries are consolidated on the basis of twelve-month
periods ending December 31. Investments in corporate joint ventures and other
companies in which the Company has a 20 to 50 percent ownership and has no
control are accounted for by the equity method. Cost investments, less than 20
percent owned, are carried at their original cost.
Cash and Cash Equivalents, Time Deposits and Restricted Cash
The Company considers cash on hand, cash in banks, certificates of deposit,
time deposits and U.S. government and other short-term securities with
maturities of three months or less when purchased as cash and cash
equivalents. Investments with a maturity period of greater than three months
but less than one year are classified as short-term investments. Certain
mortgage-backed certificates, repurchase obligations and certificates of
deposit with maturities of more than one year are classified as long-term time
deposits. At December 31, 1996, the Company has $61.5 million (1995: $109.6
million) of restricted cash, of which approximately $40.1 million (1995: $53.7
million) is classified as a current asset, representing funds on deposit with
a bank in an interest-bearing escrow account for payment of future operating
lease obligations.
Inventories
Inventories are valued at the lower of cost or market, using the first-in,
first-out (FIFO) or average cost methods.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. For financial accounting
purposes, depreciation is computed principally on the straight-line method
over the estimated useful lives of the assets (generally, 20 to 30 years for
buildings and 5 to 15 years for machinery and equipment). For income tax
purposes, certain assets are depreciated using accelerated methods.
Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair market value of net
assets of businesses acquired. Goodwill is amortized on a straight-line basis
over a period not to exceed forty years and is reported net of accumulated
amortization of $294.9 million in 1996 and $241.6 million in 1995. The Company
assesses potential impairment of enterprise goodwill by comparing the carrying
value of goodwill at the balance sheet date with anticipated undiscounted
future operating income before amortization. Intangibles, which principally
represent the cost of acquiring patents and product rights, are amortized over
their estimated useful lives and are reported net of accumulated amortization
of $231.4 million in 1996 and $106.3 million in 1995.
IV-5
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, including related allocated
goodwill, and identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In determining the amount of an impairment loss, the Company
compares an asset's carrying value to its fair market value as measured by
market price or discounted future cash flows.
Royalties
The Company recognizes royalties paid (received) as increases (reductions)
in cost of products sold.
Advertising
Advertising costs are generally expensed within the fiscal year that the
costs are incurred, except for direct response advertising, which is
capitalized and amortized over the expected period of future benefit.
Advertising expenses primarily associated with the use of public media,
medical publications and symposia totaled $238.9 million in 1996 and $200.3
million in 1995.
Foreign Currency Translation
Financial information relating to the Company's subsidiaries located outside
the United States is translated using the current rate method. Local
currencies are considered the functional currencies except in countries with
highly inflationary economies.
Income Taxes
The Company and substantially all of its United States subsidiaries file a
consolidated federal income tax return. No provision has been made for United
States income taxes or withholding taxes on the unremitted earnings of non-
U.S. subsidiaries which are intended to be indefinitely reinvested. The
Company follows Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," effective for fiscal periods ending after December
15, 1997. The Statement simplifies earnings per share calculations and
requires presentation of both basic and fully diluted earnings per share on
the face of the statement of income. The Company does not expect that adoption
of SFAS No. 128 will have a material impact on the Company's earnings per
share calculations.
NOTE 2. ACQUISITIONS FROM RHONE-POULENC S.A.
In 1995, the Company acquired from Rhone-Poulenc S.A. ("RP") the businesses
of Cooperation Pharmaceutique Francaise ("Cooper"), primarily in France, and a
pharmaceutical business in Brazil for cash and preferred stock of a French
subsidiary aggregating approximately $273.2 million. The preferred shares,
accounted for as minority interest in other liabilities, have a liquidation
preference approximating FF645.0 million and pay dividends of 7.5% per annum
on a stated value of FF145.0 million. The acquisition agreements call for
potential adjustments to the purchase price of the businesses based on several
factors, including earnings performance.
For accounting purposes, the acquisitions of these entities under common
control were treated on an "as-if pooling" basis and, accordingly, the Company
restated its 1994 results to include the accounts of Cooper and
IV-6
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Brazilian business as of April 1, 1994 (the date that Cooper was acquired
by RP) and January 1, 1994, respectively. The effect of restatements in
periods prior to 1994 was not material. The assets and liabilities of the
acquired businesses were recorded by the Company at the carrying values used
by RP as of the restatement dates. Earnings per share for the restated periods
reflect pro forma adjustments giving effect to interest on indebtedness and
preferred dividends relative to the acquisition transactions.
NOTE 3. FISONS
In October 1995, the Company acquired the outstanding shares of Fisons plc
("Fisons"), a U.K.-based pharmaceutical company, for a total purchase price
including expenses of $2,993.0 million. The acquisition was accounted for
under the purchase method and, accordingly, the purchase price was allocated
based upon the fair values of the assets and liabilities acquired. Purchase
price allocations, which were finalized in 1996, resulted in goodwill of
$2,159.0 million and intangibles of $640.0 million, to be amortized on a
straight-line basis over lives of 40 years and 20 years, respectively. The net
reduction to the preliminary goodwill balance of $2,278.0 million estimated at
December 31, 1995 primarily reflected adjustments to tax reserves and pension
liabilities, and contingencies associated with the sale of the Scientific
Instruments Division. Total net deferred tax and other liabilities, including
restructuring of the Fisons business and disposal contingencies, included in
the purchase price allocation approximated $495.0 million. In connection with
the acquisition, the Company recorded a charge of $21.0 million for acquired
research and development in 1995 related to Fisons research and development
activities for which technological feasibility had not yet been established
and no alternative future use existed.
In addition to its pharmaceutical operations, the Fisons business included
certain discontinued operations, namely the Laboratory Supplies Division, a
distributor of laboratory equipment and supplies and clinical diagnostic
products, and the Scientific Instruments Division, a manufacturer of
instruments used in surface science and in elemental spectrometry and
analysis. Substantially all of the Laboratory Supplies Division was sold prior
to completion of the acquisition with related proceeds of $336.2 million. A
smaller unit of the division was sold in November 1995 for approximately $35.0
million. In March 1996, the sale of the majority of Fisons' Scientific
Instruments Division to Thermo Instruments Systems Inc. was completed; the
remaining mass spectrometry and PlasmaTrace assets of the division were also
sold in March. Total consideration approximated $271.8 million, representing
$235.9 million in cash and the assignment of $35.9 million of external debt.
At December 31, 1995, the net assets of the Scientific Instruments Division
were recorded at their estimated net realizable value and classified as assets
held for sale on the consolidated balance sheet. Results of operations of the
Scientific Instruments Division from the date of acquisition to the date of
sale were not material.
In July 1996, the Company finalized its agreement with Medeva plc to sell
certain U.S.-based ex-Fisons fixed assets and license certain intellectual
property rights for total cash consideration of $370.0 million. At the end of
a four-and-one-half year period, Medeva has the option to purchase the
intellectual property rights. The upfront cash payment includes fixed asset
sale proceeds and certain prepayments under the licensing arrangement,
including licensing fees and a purchase option payment which are refundable in
certain circumstances.
NOTE 4. APPLIED IMMUNE SCIENCES, INC.
In both 1995 and 1994, Applied Immune Sciences, Inc. ("AIS"), in which the
Company had a 37% interest, achieved a development milestone requiring RPR to
purchase an additional one million AIS shares approximately equal to an
additional 5% interest. In connection therewith, the Company recorded pretax
charges for acquired research and development expense in equity losses of
affiliates totaling $13.0 million and $11.0 million, respectively.
IV-7
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the fourth quarter of 1995, the Company purchased for a cash price of
$91.6 million, including expenses, the remaining 53%, or 7.2 million
outstanding shares, of AIS not previously owned by RPR. Under the step-
purchase method, the Company recorded additional intangible assets of
approximately $73.5 million. The Company also recorded a charge to operations
of $22.6 million for acquired research and development related to research and
development activities for which technological feasibility had not yet been
established and no alternative future use existed.
In 1996, the Company recorded pretax charges of $102.6 million from the
reassessment of the carrying values of certain AIS-related assets, principally
intangibles and fixed assets, following the Company's decision to
substantially curtail ex-vivo cell processing projects which had been mainly
initiated by AIS.
NOTE 5. CENTEON JOINT VENTURE
Under terms of a September 28, 1995 Amendment to the Joint Venture Agreement
(the "Amendment"), the Company's Armour Pharmaceutical Company subsidiary
("Armour") and Behringwerke AG ("Behring"), a subsidiary of Germany's Hoechst
AG, completed the formation of Centeon, a 50/50 global joint venture in the
plasma proteins business. The joint venture's Board of Directors was formally
established on January 1, 1996, at which time joint control and profit-sharing
provisions took effect. Accordingly, the Company deconsolidated Armour's net
assets at December 31, 1995. The operations of the Armour plasma businesses
are included in the Company's reported results for the twelve months ended
December 31, 1995; in 1996, the Company's interest in the results of the joint
venture is reported as (income) losses of equity affiliates included in other
(income) expense, net (see Note 9).
In October 1996, Centeon initiated a voluntary worldwide recall of all in-
date lots of Albuminar(R)/Plasma-Plex(R) products as a precautionary measure
in response to manufacturing concerns with respect to these products at a U.S.
production facility. The manufacture of Albuminar(R)/Plasma-Plex(R) and other
plasma-derived products at the location was temporarily suspended by Centeon
while the U.S. Food and Drug Administration ("FDA") and Centeon conducted a
comprehensive review of the manufacturing processes at the facility. In
December 1996, Centeon voluntarily suspended the production of certain
pharmaceutical products (such as Dilacor XR(R) and calcitonin products)
manufactured for the Company at the U.S. facility. Due to available inventory
and alternate sources of supply, there has been no significant interruption in
supply of the Company's pharmaceutical products.
In January 1997, Centeon entered into a consent decree with the U.S.
Government which specifies conditions for the shipment by Centeon of both
plasma-based products and certain pharmaceutical products. The consent decree,
which has a term of at least five years, provides, among other things, that
Centeon will not distribute product manufactured at the facility until (1) a
third party expert retained by Centeon has inspected the facility and reported
to the FDA the status of both the observations made by the FDA and Centeon's
compliance with current Good Manufacturing Practices ("GMPs"), (2) Centeon has
certified to its compliance with GMPs and (3) the FDA has made such
inspections at the facility as it deems necessary and has notified Centeon
that it appears to be in compliance with GMPs and may distribute the
manufactured products.
Centeon resumed production of both plasma-based and pharmaceutical products
at the facility in late January 1997. In March, Centeon voluntarily halted
production of both plasma-based and pharmaceutical products in order to
address certain production issues. In mid-March, Centeon and the FDA received
a first report from the third party expert as contemplated by the consent
decree. This report indicated that Centeon had made significant corrective
actions consistent with the observations made during the FDA investigation and
identified certain additional actions needed to be taken. Centeon is
addressing these additional actions. Centeon believes
IV-8
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
that these actions together with the other conditions of distribution under
the consent decree will be satisfied, so that, based on a phased-in resumption
of manufacturing, distribution of plasma-based products, after completion of
testing and lot release by the FDA, will begin during the second quarter of
1997. Centeon also expects that it will be in a position to resume
distribution during the second quarter of the pharmaceutical products
manufactured for the Company at the facility.
The Company's interest in Centeon's results for the year ended December 31,
1996 included charges of $44.0 million, representing charges associated with
anticipated returns of recalled products from customers, writeoff of certain
inventories, and related expenses.
Summarized financial information with respect to Centeon for the year ended
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Current assets...................................... $529.4
Noncurrent assets................................... 318.6
Current liabilities................................. 409.0
Noncurrent liabilities.............................. 284.0
Net sales*.......................................... $904.3
Gross margin........................................ 384.5
Income before income taxes.......................... 125.2
</TABLE>
- --------
* Includes sales to certain RPR affiliates totaling $27.8 million.
NOTE 6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial information has been prepared as
if the acquisitions of Fisons and AIS and the formation of Centeon had
occurred at the beginning of the periods presented. The results of operations
of Fisons' Laboratory Supplies Division and Scientific Instruments Division
are not included in the pro forma results for 1995 and 1994. The pro forma
information presents the results of the Armour businesses contributed to
Centeon as non-operating income from equity affiliates; sales recorded by
these businesses approximated $489.0 million and $415.1 million in 1995 and
1994, respectively. The pro forma information also reflects 100% of the
operating results of AIS as research and development expenses and eliminates
the equity losses associated with the Company's prior equity investment in
AIS. Adjustments have been made for financing charges and goodwill
amortization, and income taxes are provided at an effective income tax rate of
36%. The pro forma information does not purport to be indicative of the
Company's results of operations had the transactions actually occurred on the
dates presented nor is it necessarily indicative of future operating results.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales.......................................... $ 5,316.1 $ 4,799.3
Operating income................................... 607.5 162.0
Net income (loss) from continuing operations before
nonrecurring charges available to common
shareholders...................................... 341.6 (66.4)
Earnings (loss) per common share, restated pro
forma............................................. $ 2.53 $ (.56)
Average common shares outstanding.................. 134.2 135.3
</TABLE>
Pro forma operating income for the year ended December 31, 1995 excludes
$126.5 million of acquisition-related charges recorded by the Company
including pretax restructuring charges of $60.0 million, acquired research and
development expense of $43.6 million, and integration and other costs related
to the Fisons acquisition of $22.9 million.
IV-9
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma operating income for the year ended December 31, 1994 includes
charges of $259.3 million recorded by Fisons in connection with the
restructuring of its pharmaceutical operations and charges of $121.2 million
for an RPR global restructuring plan.
Pro forma net income (loss) from continuing operations before nonrecurring
charges excludes a $133.4 million pretax gain on Fisons' sale of the greater
portion of its research and development operations in the second quarter of
1995. Research and development expenses associated with the activities sold
approximating $23.9 million are also excluded from the 1995 pro forma results.
Pro forma net income (loss) from continuing operations before nonrecurring
charges also excludes one-time charges related to the Company's investments in
AIS, including acquired research and development expense and the reassessment
of call option values, totaling $13.0 million and $31.4 million in 1995 and
1994, respectively.
NOTE 7. RESTRUCTURING CHARGES
In 1995, the Company recorded a $60.0 million pretax charge related to the
restructuring of RPR operations as a direct result of the Fisons acquisition.
As part of the Fisons purchase price allocation, the Company also recorded a
$100.0 million liability for the restructuring of Fisons operations. The
combined $160.0 million liability represented expected cash outlays,
principally severance-related, associated with eliminating positions primarily
in the marketing, administrative and manufacturing functions. As of December
31, 1996, workforce reductions approximated 1,900 positions, many of which
were based in the U.S. and the U.K. although other locations were also
affected.
A rollforward of the remaining 1995 restructuring provision from January 1,
1996 is as follows:
<TABLE>
<CAPTION>
TRANSLATION
JANUARY 1, ADJUSTMENTS/ DECEMBER 31,
1996 PAYMENTS OTHER 1996
---------- -------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Social costs................... $148.5 $ (99.3) $(8.0) $41.2
Third parties.................. 11.5 (17.0) 5.5 --
------ ------- ----- -----
Total........................ $160.0 $(116.3) $(2.5) $41.2
====== ======= ===== =====
</TABLE>
In 1994, the Company recorded a $121.2 million pretax charge in connection
with a global restructuring plan that was substantially completed in 1995.
Workforce reductions approximated 1,100 positions and were primarily from
manufacturing, sales/marketing and administrative functions in North America
and in France, although other locations in Europe and elsewhere were also
affected. At December 31, 1996, the remaining reserve was $11.3 million
representing outstanding social costs. Total cash outlays related to the plan
through December 31, 1996 totaled $89.2 million, with outlays of $7.5 million
in 1996, $47.6 million in 1995 and $34.1 million in 1994. Asset writeoffs in
conjunction with certain production facilities totaled $26.9 million, of which
$7.5 million and $19.4 million were recorded in 1995 and 1994, respectively.
NOTE 8. GAIN ON SALES OF ASSETS
In 1996, the Company recorded a pretax gain of $81.5 million on the sale of
certain nonstrategic European self-medication product rights and inventories
to Hoffmann-La Roche. The Company also recorded pretax gains on the sales of a
nonstrategic product in France and its Belgium over-the-counter business
totaling $29.2 million.
In 1995, the Company recorded pretax gains of $49.5 million on sales of
assets, principally the transfer of the Company's Canadian over-the-counter
business to Ciba-Geigy Ltd. ("Ciba"), and the sale of certain European product
rights. In 1994, similar gains, including the gain on the sale of certain
assets related to the
IV-10
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's U.S. over-the-counter business to Ciba, totaled $46.2 million. Under
terms of the U.S. transfer agreement with Ciba, the Company received a one-
time payment totaling $178.0 million which included a prepaid royalty of $24.0
million for the year 1995. Additional royalties of $24.0 million are expected
per year for six years. At the end of the seven-year period, Ciba has the
option to purchase the U.S. product intellectual property assets for
approximately $143.0 million.
NOTE 9. OTHER (INCOME) EXPENSE, NET
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
(Income) losses of equity affiliates................ $ (83.0) $ 44.4 $ 46.5
Minority interest................................... 8.7 4.9 3.3
Foreign exchange (gains) losses..................... (3.5) (4.7) 10.5
Other, net.......................................... (11.3) 21.3 23.6
------- ------ ------
Other (income) expense, net......................... $ (89.1) $ 65.9 $ 83.9
======= ====== ======
</TABLE>
(Income) losses of equity affiliates in 1996 principally represented the
Company's interest in the Centeon joint venture (see Note 5). Equity losses
associated with AIS prior to the Company's 1995 acquisition of AIS' remaining
outstanding shares totaled $38.3 million in 1995 and $28.6 million in 1994,
including acquired research and development of $13.0 million and $11.0
million, respectively.
Other, net for 1996 included gains on sales of nonstrategic cost investments
and increased provisions for anti-hemophilic factor litigation. Other, net for
1995 and 1994 included charges of $25.4 million and $30.6 million,
respectively, related to the reassessment of the carrying value of certain
assets including those associated with the Company's prior investment in The
Immune Response Corporation (1995) and AIS call options (1994).
NOTE 10. EARNINGS PER SHARE
Earnings per common share were computed by dividing net income available to
common shareholders by the weighted average number of shares of common stock
outstanding. For purposes of earnings per share calculations, net income
available to common shareholders in 1995 and 1994 was adjusted for the pro
forma effects of interest on indebtedness and preferred dividends relative to
the acquisitions of businesses from RP totaling $1.6 million and $9.1 million,
respectively. The weighted average number of shares used to compute primary
earnings per common share was 135,790,590, 134,228,677 and 135,254,692 for the
years 1996, 1995 and 1994, respectively. Common share equivalents in the form
of stock options were excluded from the calculation as their dilutive effect
was not material.
NOTE 11. INVENTORIES
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Finished goods........................................ $ 376.9 $ 346.2
Work in process....................................... 159.8 140.6
Raw materials and supplies............................ 264.0 278.8
---------- ----------
Inventories........................................... $ 800.7 $ 765.6
========== ==========
</TABLE>
IV-11
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Land.................................................. $ 76.3 $ 62.2
Buildings............................................. 839.7 880.0
Machinery and equipment............................... 1,731.7 1,604.0
Construction in progress.............................. 339.3 330.3
---------- ----------
2,987.0 2,876.5
Less accumulated depreciation......................... 1,461.1 1,255.5
---------- ----------
Property, plant and equipment, net.................... $ 1,525.9 $ 1,621.0
========== ==========
</TABLE>
The Company incurred $217.6 million and $109.9 million in interest cost in
1996 and 1995, respectively, of which $4.9 million and $4.7 million,
respectively, was capitalized as part of the cost of additions to property,
plant and equipment.
NOTE 13. DEBT
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Notes payable to banks................................. $ 89.3 $ 354.7
Current portion of long-term debt...................... 30.6 29.5
---------- ----------
Short-term debt........................................ $ 119.9 $ 384.2
========== ==========
Notes payable to Rhone-Poulenc S.A. and affiliates..... $ 6.8 $ 127.6
========== ==========
</TABLE>
The weighted average interest rate of total outstanding short-term debt was
10.8% at December 31, 1996 (1995: 7.9%).
Long-term debt, net of current portion, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Notes payable at variable rates averaging 5.2% and
5.9% at 1996 and 1995 year-end, respectively
(expected to be refinanced long-term)............... $ 1,940.5 $ 1,825.0
9.25% Series A Senior Notes due 2004, with interest
payable quarterly (guaranteed by Rhone-Poulenc
S.A.)............................................... 48.3 52.7
9.05% Series B Senior Notes due 1997, with interest
payable quarterly (guaranteed by Rhone-Poulenc
S.A.)............................................... -- 4.3
Notes, mortgages and capitalized lease obligations at
rates averaging 7.8% (1995: 8.1%)................... 283.2 277.0
---------- ----------
Long-term debt....................................... $ 2,272.0 $ 2,159.0
========== ==========
Notes payable to Rhone-Poulenc S.A. and affiliates at
rates averaging 3.9% and 6.0% at 1996 and 1995 year-
end, respectively (expected to be refinanced long-
term)............................................... $ 39.2 $ 500.0
Notes payable to Rhone-Poulenc S.A. and affiliates
principally due in 2000 at rates averaging 5.0%
(1995: 8.4%)........................................ 213.8 25.4
---------- ----------
Notes payable to Rhone-Poulenc S.A. and affiliates... $ 253.0 $ 525.4
========== ==========
</TABLE>
IV-12
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, the Company had total committed lines of credit of
$2,325.0 million. Of this amount, $1,825.0 million represented multicurrency
medium-term facilities with fourteen banks expiring in the year 2000. The
additional $500.0 million represented two medium-term credit agreements with
Rhone-Poulenc S.A. expiring in 2000 and 2002. Borrowings under these medium-
term credit facilities bear interest at the London Interbank Offered Rate
("LIBOR"), plus any applicable margin and commitment fee. At December 31,
1996, borrowings outstanding under the above arrangements totaled $594.7
million. These borrowings plus an additional $1,385.0 million of short-term
borrowings were classified as long-term debt at December 31, 1996 as the
Company had the ability and intent to refinance these amounts on a long-term
basis under the above medium-term facilities. The $1,979.7 million of
reclassified borrowings were in various currencies with interest rates as
follows: $874.6 million in U.S. Dollars at 5.7%, $140.1 million in French
Francs at 3.8%, $714.7 million in German Marks at 5.7%, $145.0 million in
Japanese Yen at .7% and $105.3 million in Great British Pounds at 6.3%.
Amounts available under unused uncommitted lines of credit approximated
$991.0 million at December 31, 1996 (1995: $624.0 million).
The aggregate maturities of all long-term debt at December 31, 1996,
including related party debt, were: $30.6 million in 1997, $43.2 million in
1998, $206.1 million in 1999, $2,200.4 million in 2000, $17.7 million in 2001,
and $57.6 million thereafter.
The weighted average interest rate of total debt outstanding at December 31,
1996 was 6.0% (1995: 6.4%).
Pursuant to the remaining portion of a U.S. shelf registration for $500.0
million, the Company has the ability to issue $325.0 million in public debt
securities and/or preferred shares.
NOTE 14. LEASE COMMITMENTS
The Company's capital lease obligations pertain primarily to certain
administrative and research facilities. Effective January 1, 1996, the Company
leased to Centeon under capital lease arrangements certain buildings,
machinery and equipment in the U.S. and France which support production and
research and development activities. Related rental income in 1996 totaled
$3.6 million.
The Company occupies certain facilities and leases certain equipment and
large-load vehicles under operating lease agreements. In 1992, the Company
sold its U.S. corporate offices and research facility to a third party and
leased it back for an initial term of thirty years with options to renew for a
longer period. The Company also leased the underlying land to the third party
for sixty years and subleased it back for thirty years with the facility.
Related average annual accounting rent is $22.5 million. Rent expense under
operating leases was $125.5 million, $104.2 million and $55.0 million in 1996,
1995 and 1994, respectively. Related rental income totaled $55.4 million and
$37.7 million in 1996 and 1995, respectively.
IV-13
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease commitments and lease receivables under all leases with
initial or remaining noncancelable lease terms in excess of one year at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
----------------------- -----------------------
LEASE LEASE LEASE LEASE
COMMITMENTS RECEIVABLES COMMITMENTS RECEIVABLES
----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1997........................ $ 8.2 $ 6.9 $123.1 $41.4
1998........................ 6.2 6.5 80.0 19.7
1999........................ 3.7 6.3 63.6 11.0
2000........................ 3.2 5.9 45.5 --
2001........................ 3.2 5.7 43.4 --
Thereafter.................. 15.4 94.5 585.7 --
----- ------ ------ -----
Minimum lease
payments/receipts.......... 39.9 125.8 $941.3 $72.1
====== =====
Less imputed
interest/unearned income... (8.0) (66.5)
----- ------
Present value of minimum
lease payments
(current--$6.6,
noncurrent--$25.3)......... $31.9
=====
Net investment in capital
leases
(current--$2.9, non-
current--$56.4)............ $ 59.3
======
</TABLE>
NOTE 15. INCOME TAXES
The components of income before income taxes are:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
United States....................................... $ 23.5 $ 241.3 $ 241.0
Non-U.S. ........................................... 666.9 296.7 271.9
------- ------- -------
Income before income taxes.......................... $ 690.4 $ 538.0 $ 512.9
======= ======= =======
</TABLE>
The components of the provision for income taxes are:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current:
United States................................... $ 62.0 $ 96.9 $ 103.4
Non-U.S......................................... 216.0 100.4 109.9
------- ------- -------
278.0 197.3 213.3
------- ------- -------
Deferred:
United States................................... (89.0) (22.6) (51.7)
Non-U.S......................................... 27.9 6.8 (15.8)
------- ------- -------
(61.1) (15.8) (67.5)
------- ------- -------
Provision for income taxes........................ $ 216.9 $ 181.5 $ 145.8
======= ======= =======
</TABLE>
IV-14
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes are provided for temporary differences between book
and tax bases of the Company's assets and liabilities. Temporary differences
giving rise to a significant portion of the deferred tax assets and
liabilities at December 31 are:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Assets (liabilities):
Depreciation and amortization..................... $ (231.7) $ (328.2)
Intercompany profit in ending inventory........... 81.8 60.8
Net operating loss carryforwards.................. 64.0 57.5
Pension........................................... 42.1 69.2
Tax credit carryforwards.......................... 38.6 --
Deferred royalty income........................... 37.9 --
Restructuring..................................... 27.4 35.8
Distributable earnings............................ (6.6) (66.9)
Other, including nondeductible accruals........... 114.7 188.6
---------- ----------
168.2 16.8
Less valuation allowance.......................... (5.1) (91.9)
---------- ----------
Deferred income taxes, net........................ $ 163.1 $ (75.1)
========== ==========
</TABLE>
The portion of the above net deferred tax assets (liabilities) classified as
current was $278.7 million and $211.1 million at December 31, 1996 and 1995,
respectively. At December 31, 1996, total deferred tax assets were $585.0
million and total deferred tax liabilities were $416.8 million before netting.
At December 31, 1995, similar temporary differences gave rise to total
deferred tax assets of $587.0 million and total deferred tax liabilities of
$570.2 million. The decrease in the valuation allowance in 1996 was primarily
Fisons-related and was accordingly reflected as a reduction in goodwill.
The differences between the U.S. statutory income tax rate and the Company's
effective income tax rate are:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(PERCENT OF INCOME
BEFORE INCOME TAXES)
<S> <C> <C> <C>
U.S. statutory income tax rate.......................... 35.0% 35.0% 35.0%
Puerto Rico operations.................................. (2.8) (3.1) (5.0)
Non-U.S. tax rate differential.......................... 1.4 (2.2) (1.8)
Research and development tax credits.................... (0.8) (1.0) (1.4)
Acquired research and development....................... -- 2.8 --
Other, net.............................................. (1.4) 2.2 1.6
------ ------ ------
Effective income tax rate............................... 31.4% 33.7% 28.4%
====== ====== ======
</TABLE>
The Company has subsidiaries in Ireland, Puerto Rico and Singapore, where
earnings are either exempt or substantially exempt from income taxes under
local government incentive programs, the latest of which expires in the year
2010.
The Company has net operating loss carryforwards of $180.7 million for tax
return purposes which expire principally through the years 1997 to 2011.
IV-15
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's U.S. income tax returns have been examined and settled with
the Internal Revenue Service through 1989. The Company believes that potential
adjustments from any open years would not have a material impact on the
Company's financial position or results of operations.
At December 31, 1996, unremitted earnings of subsidiaries which are intended
to be indefinitely reinvested and, accordingly, for which no additional U.S.
income taxes or foreign withholding taxes have been provided totaled $832.0
million. It would not be practical to compute the estimated deferred tax
liability on these earnings.
NOTE 16. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
PENSIONS
The Company has several defined benefit pension plans which cover a majority
of its employees throughout the world. In the United States, the Company's
funding policy is to contribute funds to a trust as necessary to provide for
current service and for any unfunded projected benefit obligation over a
reasonable period. To the extent that these requirements are fully covered by
assets in the trust, a contribution may not be made in a particular year.
Obligations under non-U.S. plans are systematically provided by depositing
funds with trustees, under insurance policies or through book reserves.
The funded status of the Company's plans at December 31 was as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ----------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- -------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Vested benefit
obligations............ $(676.0) $(449.7) $(716.5) $(428.6)
Nonvested benefits...... (3.6) (90.7) (3.5) (87.8)
------- ------- ------- -------
Accumulated benefit
obligation............. (679.6) (540.4) (720.0) (516.4)
Projected future salary
increases.............. (25.6) (76.0) (6.8) (65.5)
------- ------- ------- -------
Projected benefit
obligation............. (705.2) (616.4) (726.8) (581.9)
Fair value of plan
assets (invested
primarily in equities
and bonds)............. 895.8 226.2 782.0 184.3
------- ------- ------- -------
Plan assets in excess of
(less than) projected
benefit obligation..... 190.6 (390.2) 55.2 (397.6)
Unrecognized net
transition (asset)
liability.............. .2 5.5 (.8) 2.5
Unrecognized net (gain)
loss................... (43.6) 67.2 (27.1) 86.6
Unrecognized prior
service cost........... 17.4 3.9 20.1 (3.8)
Adjustment required to
recognize minimum
liability.............. -- (66.3) -- (63.5)
------- ------- ------- -------
Prepaid (accrued)
pension cost........... $ 164.6 $(379.9) $ 47.4 $(375.8)
======= ======= ======= =======
</TABLE>
The accumulated benefit obligation of U.S. plans included in the above table
was $190.0 million in 1996 and $186.1 million in 1995. U.S. plan assets were
$201.1 million and $165.4 million at December 31, 1996 and 1995, respectively.
Of the net accrued pension cost, $356.6 million and $359.4 million are
included in other noncurrent liabilities in 1996 and 1995, respectively.
IV-16
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following items were the components of net periodic pension cost for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Service cost........................................ $ 26.4 $ 21.3 $ 19.5
Interest cost....................................... 98.6 56.7 46.2
Actual return on plan assets........................ (102.1) (39.7) (26.6)
Amortization and deferral........................... 17.9 8.2 5.7
------- ------ ------
Net periodic pension cost........................... $ 40.8 $ 46.5 $ 44.8
======= ====== ======
</TABLE>
Net periodic pension cost for U.S. plans included in the above amounts was
$6.7 million, $9.0 million and $12.2 million for 1996, 1995 and 1994,
respectively.
The following weighted average assumptions, which are based on the economic
environment of each applicable country, were used to determine the return on
plan assets and benefit obligations:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate................................................. 8.2% 8.1% 7.9%
Expected return on plan assets................................ 9.4% 9.1% 9.6%
Rate of future compensation increases......................... 4.3% 4.7% 3.8%
</TABLE>
For U.S. plans, the discount rate was 7.75% in 1996 and 1995 and 8.5% in
1994. The expected return on plan assets of 9.5% remained constant from 1994
through 1996. The rate of future compensation increases of 4.5% remained
constant from 1994 through 1996.
SAVINGS PLANS
The Company sponsors defined contribution savings plans covering
substantially all U.S. employees. Company contributions to the plans may not
exceed three thousand dollars per employee. Amounts charged to expense were
$5.9 million, $7.1 million and $7.3 million in 1996, 1995 and 1994,
respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In the United States, the Company grants retirees access to its medical,
prescription and life insurance programs for a premium targeted to equal the
cost of such benefits. The Company's non-U.S. affiliates generally contribute
to government insurance programs during the employees' careers and do not
sponsor additional postretirement programs.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The new standard did not materially
affect the Company's financial position or results of operations.
NOTE 17. STOCK PLANS
Stock options and restricted shares have been granted to employees under
plans approved by the shareholders in 1982 and 1985, as amended and restated
in 1988 and 1990 ("the Stock Plan"). The aggregate number of shares originally
available for issuance or transfer to employees under these plans was
7,000,000. Option prices are equal to the fair market value of the shares on
the date of grant. Options are exercisable during
IV-17
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a period determined by the Company, but in no event later than ten years from
the date granted. Shares issued under a restricted grant may not be sold or
otherwise disposed of for a period designated by the Company. Restricted
shares are returned to the Company if the grantee's employment terminates
during the period of restriction. During the restriction period, the grantee
is entitled to vote the shares and receive any dividends paid. Effective
January 1, 1993, the Company substantially curtailed the granting of
restricted shares to employees. The Stock Plan, as amended and restated,
permits the Company to grant stock appreciation rights in tandem with stock
options. As of December 31, 1996, no such rights have been granted. The Equity
Compensation Plan adopted in 1990 supplements the Stock Plan by providing for
an additional 6,000,000 shares that may be issued to participants after all
shares authorized pursuant to the terms of the Stock Plan have been utilized.
The terms of the Equity Compensation Plan are substantially the same as those
of the Stock Plan. The 1995 Equity Compensation Plan further supplements the
Stock Plan by providing for an additional 5,000,000 shares. The terms of the
1995 Equity Compensation Plan are substantially the same as those of the Stock
Plan and the Equity Compensation Plan.
The Company applies Accounting Principles Board Opinion 25 ("APB 25") in
accounting for its fixed stock option plans. Under the intrinsic value method
prescribed by APB 25, no compensation expense has been recorded by the Company
in the periods reported. Had compensation expense for awards made in 1996 and
1995 from these plans been determined under the fair value method of SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
-----------------------
1996 1995
----------- -----------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net income.......................................... $ 421.3 $ 334.0
Primary earnings per common share................... $ 3.10 $ 2.48
</TABLE>
The Company used the Black-Scholes pricing model to determine the fair value
of stock options granted in 1996 and 1995 using the following assumptions:
expected life of the option ranging from 5 to 6 years and expected forfeiture
rate ranging from 12.8% to 17.9% depending on the job grade classification;
expected stock price volatility of 22.2%; expected dividend rate of 2.5%; and
risk-free interest rate ranging from 5.6% to 5.9% in 1996 and 7.0% to 7.1% in
1995 depending on expected life of the option. The impact of applying SFAS No.
123 in this pro forma disclosure is not indicative of the impact on future
years' reported net income because SFAS No. 123 does not apply to stock
options granted prior to 1995, the Company's stock options vest over three
years, and additional stock options awards are anticipated in future years.
IV-18
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's stock option plans as of December
31, 1996, 1995 and 1994 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(IN THOUSANDS) PRICE (IN THOUSANDS) PRICE (IN THOUSANDS) PRICE
-------------- --------- -------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
January 1.............. 7,991 $42.14 7,147 $42.06 5,815 N/A
Additions (deductions):
Granted................ 1,414 61.56 1,702 40.74 1,898 N/A
Exercised.............. (2,108) 37.07 (433) 32.60 (116) N/A
Canceled............... (431) 50.44 (425) 44.26 (450) N/A
------------ ------------ ------------
Options outstanding at
December 31............ 6,866 47.03 7,991 42.14 7,147 N/A
============ ============ ============
Options exercisable at
December 31............ 4,382 44.98 4,693 41.26 3,443 N/A
============ ============ ============
Weighted average fair
value of options
granted during the
year................... $15.38 $10.89 N/A
============ ============ ============
Shares reserved for
future grants.......... 5,564 6,551 2,862
============ ============ ============
Price range of options
exercised during the
year................... $4.67-$63.00 $4.67-$46.38 $8.24-$30.18
============ ============ ============
Price range of options
outstanding............ $4.67-$64.00 $4.67-$64.00
============ ============
Price range of options
exercisable............ $4.67-$64.00 $4.67-$64.00
============ ============
</TABLE>
The following table summarizes information about stock options outstanding
and stock options exercisable at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ -------------------------------
WEIGHTED AVERAGE
SHARES REMAINING WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES (IN THOUSANDS) CONTRACTUAL LIFE EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
- ------------------------ -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 8.24-$14.61........... 68 1.8 years $12.38 68 $12.38
$30.13-$38.75........... 1,549 6.2 years $33.85 1,173 $33.45
$40.00-$49.25........... 2,991 6.8 years $42.12 2,035 $42.80
$52.38-$55.50........... 31 5.5 years $55.36 31 $55.36
$60.25-$67.38........... 2,227 7.6 years $63.73 1,075 $63.46
----- -----
$ 8.24-$67.38........... 6,866 6.9 years $47.03 4,382 $44.98
===== =====
</TABLE>
IV-19
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARKET MONEY COMMON CAPITAL IN
AUCTION MARKET CAPITAL STOCK AT EXCESS OF EMPLOYEE CUMULATIVE
PREFERRED PREFERRED EQUITY STATED STATED RETAINED BENEFITS TRANSLATION
SHARES STOCK NOTES VALUE VALUE EARNINGS TRUST ADJUSTMENTS
--------- --------- ------- -------- ---------- -------- -------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... $ 225.0 $175.0 $ -- $139.0 $ 290.0 $1,207.3 $ (75.8) $(139.3)
Net income--1994........ -- -- -- -- -- 367.1 -- --
Cash dividends, $1.12
per common share....... -- -- -- -- -- (151.5) -- --
Dividends on preferred
shares................. -- -- -- -- -- (19.2) -- --
Capital contributions
from Rhone-Poulenc
S.A. .................. -- -- -- -- 107.1 -- -- --
Shares repurchased for
Employee Benefits
Trust.................. -- -- -- -- -- -- (109.9) --
Issuance of shares under
employee benefit
plans.................. -- -- -- .1 15.1 -- -- --
Translation adjustments,
including hedging...... -- -- -- -- -- -- -- 80.4
------- ------ ------ ------ ------- -------- ------- -------
Balance, December 31,
1994................... 225.0 175.0 -- 139.1 412.2 1,403.7 (185.7) (58.9)
Net income--1995........ -- -- -- -- -- 356.5 -- --
Cash dividends, $1.20
per common share....... -- -- -- -- -- (161.2) -- --
Dividends on preferred
shares................. -- -- -- -- -- (18.7) -- --
Redemption of Market
Auction Preferred
Shares................. (225.0) -- -- -- -- -- -- --
Issuance of capital
equity notes to Rhone-
Poulenc S.A............ -- -- 500.0 -- -- -- -- --
Adjustment of capital
contributions for
acquisition
liabilities............ -- -- -- -- (273.2) -- -- --
Issuance of shares under
employee benefit
plans.................. -- -- -- .4 14.2 -- -- --
Translation adjustments,
including hedging...... -- -- -- -- -- -- -- 53.8
------- ------ ------ ------ ------- -------- ------- -------
Balance, December 31,
1995................... -- 175.0 500.0 139.5 153.2 1,580.3 (185.7) (5.1)
Net income--1996........ -- -- -- -- -- 473.5 -- --
Cash dividends, $1.26
per common share....... -- -- -- -- -- (171.1) -- --
Dividends on preferred
shares................. -- -- -- -- -- (9.6) -- --
Remuneration on capital
equity notes........... -- -- -- -- -- (35.2) -- --
Issuance of shares under
employee benefit
plans.................. -- -- -- 2.1 81.6 -- -- --
Translation adjustments,
including hedging...... -- -- -- -- -- -- -- (48.7)
------- ------ ------ ------ ------- -------- ------- -------
Balance, December 31,
1996................... $ -- $175.0 $500.0 $141.6 $ 234.8 $1,837.9 $(185.7) $ (53.8)
======= ====== ====== ====== ======= ======== ======= =======
</TABLE>
The Company has outstanding $175.0 million of money market preferred stock
issued in three series consisting of 750 shares, 500 shares and 500 shares,
respectively. The initial dividend period for all series commenced on August
1, 1993 at initial dividend rates of 4.7% per annum for a two-year period for
Series 1; 5.125% per annum for a three-year period for Series 2; and 5.84% per
annum for a five-year period for Series 3. After expiration of the initial
dividend periods, dividends are determined at separate auctions for each
series. The average dividend rate in 1996 on Series 1 stock was 5.21% per
annum (1995: 5.11%) and on Series 2 stock was 5.20% per annum. The money
market preferred stock ranks prior to common shares of the Company as to
dividends. Holders have no voting rights except in the event that preferred
dividends are in arrears for at least 180 consecutive days. In such event, the
authorized number of the Company's Board of Directors would be increased by
two and the holders of record of the preferred shares may elect these
additional directors. The preferred stock is not convertible into common stock
or other shares of the Company and holders thereof have no preemptive rights.
Upon the liquidation, dissolution, or winding up of the Company, or upon
redemption of the preferred stock at the Company's option, holders would be
entitled to a liquidation preference of $100,000 per share plus any
accumulated and unpaid dividends thereon.
In 1995, the Company redeemed its remaining outstanding Market Auction
Preferred Shares ("MAPS") Series A, C and D for $225.0 million plus accrued
dividends. Dividend rates, determined at separate auctions for each series,
averaged 5.98% during 1995 (1994: 4.63%).
In December 1995, the Company issued $500.0 million of undated capital
equity notes to Rhone-Poulenc S.A. The notes have a liquidation preference
that ranks senior to all RPR common stock, but junior to all existing
IV-20
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and future RPR preferred stock. Semiannual remuneration on the unpaid
principal balance of the equity notes is based on LIBOR plus a margin. If the
Company is unable to meet statutory standards for dividend payments on
outstanding common or preferred stock, the Company may satisfy the equity note
remuneration requirements with the issuance of additional capital equity notes
("remuneration notes"). Terms of the remuneration notes would be similar to
the equity notes except for a higher rate of remuneration. The capital equity
notes are redeemable only at the Company's option, but not earlier than five
years after issuance, subject to certain exceptions.
At December 31, 1996 and 1995, there were 2,676,800 preferred shares without
par value authorized and unissued.
In 1996, the Company increased the number of authorized common shares to
600,000,000. In 1994, the Company completed the open market repurchase of five
million of its common shares as authorized by the Board of Directors in March
1993 with the acquisition of 3.1 million shares at a cost of $109.9 million.
These shares are being held in an Employee Benefits Trust to fund future
benefits in the United States.
In 1995, the Company acquired Cooper and a pharmaceutical business in Brazil
from Rhone-Poulenc S.A. For accounting purposes, the acquisitions of these
entities under common control were treated on an "as-if pooling" basis and,
accordingly, the Company restated its 1994 results to include the accounts of
Cooper and the Brazilian business as of April 1, 1994 and January 1, 1994,
respectively. The assets and liabilities of the acquired businesses were
recorded by the Company at the carrying values used by RP as of the
restatement dates and the value of net assets acquired was reflected in the
1994 capital in excess of stated value account as a capital contribution from
RP. The Company subsequently reduced capital in excess of stated value to
reflect the purchase obligations related to the acquisition transactions of
approximately $273.2 million.
NOTE 19. FINANCIAL INSTRUMENTS
The Company's financial instruments consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(ASSET (LIABILITY) IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents..... $ 100.6 $ 100.6 $ 115.4 $ 115.4
Cash pooling arrangements with
RP........................... 3.2 3.2 16.0 16.0
Time deposits, generally
maturing within 1-5 years.... 146.4 146.4 83.0 83.0
Cost investments:
Practical to estimate....... 18.0 29.8 9.0 13.6
Not practical to estimate... 14.2 N/A 19.9 N/A
Other investments, including
restricted cash.............. 85.2 89.4 112.6 118.7
Long-term debt................ (2,555.6) (2,561.2) (2,713.9) (2,722.7)
Foreign currency exchange
contracts.................... 10.4 * 10.4 (7.6)* (7.6)
Interest swap arrangements.... (23.7)* (42.0) (3.7)* (3.8)
</TABLE>
- --------
* The carrying amount represents the net unrealized gain (loss) or net
interest receivable (payable) associated with the contracts at the end of
the period.
None of the Company's financial instruments are held for trading purposes.
IV-21
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash, cash equivalents and cash pooling arrangements with RP
The carrying amount approximates the fair value due to the short-term
maturity of these instruments.
Time deposits
The carrying amount approximates the fair value due to the variable rate
nature of the long-term deposits.
Cost and other investments
For those investments for which it was practical, fair value was estimated
using quoted or best estimates of market prices or pricing models. An estimate
of fair market value could not be reasonably made for certain cost investments
for which there are no quoted market prices.
Long-term debt
The majority of the Company's long-term debt is at variable rates of
interest and, therefore, the Company believes that the carrying amount
approximates fair value. For long-term debt at fixed interest rates, fair
value was determined by discounting future cash flows based on interest rates
currently available to the Company for debt with similar terms and maturities.
Foreign currency exchange contracts
The fair value of foreign currency exchange contracts was estimated by
valuing the contracts at current exchange rates.
Interest swap arrangements
The fair value of interest swap arrangements reflects the amount at which
they could be settled based on bank pricing models.
CREDIT RISK
The Company places its cash investments and time deposits with credit-
worthy, high quality financial institutions and, by policy, limits the amount
of credit exposure to any one institution. The Company therefore does not
anticipate nonperformance by any of the counterparties to these financial
instruments.
Concentrations of credit risk with respect to trade receivables is limited
due to a large customer base in a wide geographic area.
Foreign currency exchange contracts do not expose the Company to accounting
risk due to exchange rate movements as gains and losses on the contracts
offset gains and losses on the transactions being hedged. Management believes
that the risk of incurring losses on these contracts due to default by the
counterparty is remote as the contracts are entered into with major financial
institutions.
Interest swap arrangements do not involve exchanges of underlying principal
amounts, therefore the Company's exposure to credit loss is significantly less
than the notional amounts of the contracts. Management believes that the risk
of incurring losses due to default by the counterparty is remote as the
arrangements are entered into with major financial institutions.
IV-22
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
NET INVESTMENT HEDGES
Unhedged net investment positions fluctuate with currency movements with
corresponding translation adjustments recorded in shareholders' equity. The
Company may utilize foreign currency arrangements, including foreign currency
exchange contracts and foreign currency-denominated borrowings, to limit the
exposure of its net investments in foreign subsidiaries to currency
fluctuations and limit the volatility of reported equity. Gains and losses
from these arrangements, which are designated as hedges of the Company's net
foreign investments, are recorded as translation adjustments in shareholders'
equity and offset the gains and losses on the related net investments. For the
year ended December 31, 1996, the increase in shareholders' equity, net of tax
effects, associated with net investment hedging arrangements totaled $16.8
million (1995: reduction of $5.2 million).
In determining which, if any, net investment positions to hedge, the Company
considers such factors as the magnitude of the exposed position and the cost
of financing the hedging instruments. The Company's significant net foreign
investment positions at December 31, 1996 included the Great British Pound
("GBP"), French Franc, German Mark and Japanese Yen. Throughout the year, the
Company hedged a portion of these net investment exposures utilizing foreign
currency exchange contracts and foreign currency-denominated borrowings. At
December 31, 1996, the Company was party to foreign currency exchange
contracts to sell French Francs with notional amounts totaling FF431.4 million
($82.4 million). These contracts matured in the first quarter of 1997. The
Company also had certain variable-rate foreign currency-denominated borrowings
outstanding in the U.S. including FF499.3 million ($95.3 million) and
(Yen)15,147 million ($130.1 million). The Company had no net investment
hedging instruments outstanding at December 31, 1995.
FOREIGN CURRENCY TRANSACTION HEDGES
The Company enters into foreign currency exchange contracts to minimize
exposure of foreign currency transactions (such as export sales, raw materials
purchases, and short-term intercompany financings) and firm commitments to
fluctuating exchange rates. Gains or losses from these contracts are
recognized in the basis of the transaction being hedged. Cash flows from these
contracts are classified in the same category as the hedged transactions.
The Company's principal net transactional exposures by major currency before
the effects of foreign currency exchange contracts were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- ---------------------
LOCAL U.S. DOLLAR LOCAL U.S. DOLLAR
CURRENCY EQUIVALENT CURRENCY EQUIVALENT
-------- ----------- -------- -----------
(ASSET (LIABILITY) IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. dollars*......................... 619 $ 619 139 $ 139
FF.................................... 506 97 (332) (68)
GBP................................... (318) (540) (158) (246)
DEM................................... (77) (50) 73 51
All other (generally <$45 million).... various (15) various 82
----- -----
Total............................. $ 111 $ (42)
===== =====
</TABLE>
- --------
* Represents U.S. dollar-denominated transactions of affiliates with
functional currencies other than the U.S. dollar.
IV-23
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's policy is to hedge substantially all of its foreign currency
transactional exposures. At December 31, 1996, the Company had entered into
multiple forward contracts maturing in the first quarter of 1997 to buy and
sell various currencies with notional amounts totaling $819.8 million and
$936.9 million, respectively. Similar contracts which matured in the first
quarter of 1996 totaled $478.3 million and $445.7 million, respectively, at
December 31, 1995. At the acquisition date, Fisons had certain foreign
currency exchange contracts in place that were speculative in nature to sell
various currencies totaling $238.0 million. These contracts were effectively
closed out at December 31, 1995 through the purchase of opposite contracts and
the $9.2 million cost of settlement was fully accrued. The contracts were
settled in 1996.
As the Company conducts a significant portion of its operations outside the
U.S., it is exposed to the impact of foreign exchange fluctuations on the U.S.
dollar value of reported earnings. To manage this exposure, the Company may
hedge a portion of its non-U.S.-based forecasted quarterly pretax earnings
utilizing foreign currency exchange contracts. The portion of earnings that
the Company hedges is based on a cost-benefit assessment which considers
naturally offsetting exposures and the cost of hedging instruments. Such
foreign currency exchange contracts are marked to market in other (income)
expense, net. For the periods reported, the net gains/losses on these
contracts were not significant due principally to the general stability vis-a-
vis the U.S. dollar of the currencies hedged. Cash flows associated with the
contracts are reported as part of cash flows from operating activities. There
were no related contracts outstanding at December 31, 1996 and 1995.
As part of the treasury services the Company performs for Centeon, at
December 31, 1996, the Company had outstanding certain foreign currency
exchange contracts to which Centeon was the counterparty. The notional amounts
of these contracts to buy and sell various foreign currencies totaled $19.9
million and $7.2 million, respectively. The contracts, which expired in
January 1997, reflected rates that were established on an arms-length basis;
the related carrying values at December 31, 1996 was not significant.
INTEREST SWAP ARRANGEMENTS
The Company enters into interest rate swap contracts to manage its exposures
to movements in interest rates and minimize its overall cost of borrowings.
The net receivable or payable under the interest rate swaps is recognized as
an adjustment to interest expense over the life of the underlying contracts.
In 1996 and 1995, the Company was party to contracts to convert certain
floating rate obligations into fixed rate instruments and contracts to convert
certain fixed rate debt into floating rate debt as determined by the interest
rate environment of the currency in which the underlying obligation was
denominated. The Company's weighted average interest rate for the year ended
December 31, 1996 was reduced by 8 basis points or approximately $2.3 million
(1995: 6 basis points or $.5 million; 1994: 17 basis points or $1.3 million)
as a result of interest rate swap contracts.
In 1996, the Company initiated a long-term GBP-denominated intercompany loan
from a U.S. subsidiary to a U.K. subsidiary totaling GBP 544.9 million ($850.0
million). The foreign exchange on the loan is recorded as a translation
adjustment in shareholders' equity in accordance with SFAS No. 52 and resulted
in an increase in shareholders' equity approximating $66.7 million in 1996.
Interest on the intercompany loan is paid in GBP based on one-year LIBOR. With
respect to the transaction, the Company entered into certain five-year
arrangements ("dual currency swaps") with several banks whereby the U.S.
subsidiary pays the banks GBP at rates based on one-year LIBOR times specified
GBP principal amounts equal in total to the intercompany loan. The subsidiary
receives from the banks U.S. dollars at rates based on one-month LIBOR plus a
margin. There is no exchange of underlying principal. The interest
income/expense differential is recorded as an adjustment to interest expense
and was not significant in 1996.
IV-24
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest rate swap arrangements outstanding at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
NOTIONAL U.S. DOLLAR FIXED OR CARRYING FAIR MARKET
AMOUNT EQUIVALENT VARIABLE AMOUNT VALUE TERM AVERAGE RATE
-------- ----------- -------- -------- ----------- ----------- -----------------------------
(RECEIVABLE (PAYABLE) IN MILLIONS)
<C> <C> <C> <C> <C> <S> <C> <C>
INTEREST RATE SWAPS*:
$300 $300 Fixed $ (0.1) $ (3.8) 11/95-11/00 Pay 5.81%;
Receive 3-month LIBOR (5.55%)
(Yen)3000 26 Fixed (0.1) (0.4) 4/95- 4/98 Pay 2.01%;
Receive 3-month LIBOR (5.91%)
GBP100 170 Variable 1.4 2.5 3/96- 1/99 Pay 6-month LIBOR (6.0%);
Receive 7.3%
DUAL CURRENCY SWAPS:
GBP545 $843 N/A $(24.9) $(40.3) 8/96- 7/01 Pay 1-year LIBOR (6.34%);
Receive 1-month LIBOR (6.38%)
</TABLE>
- --------
*The Company was party to similar interest rate swap contracts at December 31,
1995.
NOTE 20. INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREA
The Company is primarily engaged in the discovery, development, manufacture
and marketing of a broad line of pharmaceutical products for human use. Among
the Company's principal markets are France, currently the Company's largest
market presence, the United States, Germany, the United Kingdom and Italy. The
Company also has an expanding presence in Japan and South American countries.
The Company has twelve pharmaceutical plants in France, two in the U.S., nine
in Other Europe and twenty-four in the Rest of World region.
The principal markets in which the Company conducts its business are subject
to various governmental regulations with respect to the approval, manufacture
and marketing of pharmaceutical products. In many markets, governments have
instituted programs that impact pharmaceutical prices, reimbursement levels or
prescription volumes. The nature of these regulations and their effect vary
greatly from country to country. It is not possible to predict the extent to
which the Company or the pharmaceutical industry might be affected by future
legislative or regulatory developments.
Information about the Company's operations for the years 1996, 1995 and 1994
by geographic area follows. Inter-area affiliated sales are not significant.
Corporate loss before income taxes includes corporate administrative expenses,
worldwide net interest expense and worldwide (income) losses of equity
affiliates.
IV-25
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales:
United States................................ $1,280.1 $1,314.2 $1,261.9
France....................................... 1,794.6 1,819.6 1,506.7
Other Europe................................. 1,417.4 1,207.4 1,015.5
Rest of World................................ 928.5 800.9 702.5
-------- -------- --------
Total net sales............................ $5,420.6 $5,142.1 $4,486.6
======== ======== ========
Income before income taxes:
United States................................ $ 207.4 $ 351.9 $ 356.9
France....................................... 107.2 245.9 172.6
Other Europe................................. 372.5 132.0 92.8
Rest of World................................ 200.3 62.5 77.6
Corporate.................................... (197.0) (254.3) (187.0)
-------- -------- --------
Total income before income taxes........... $ 690.4 $ 538.0 $ 512.9
======== ======== ========
Identifiable assets:
United States................................ $1,467.1 $4,232.9 $1,107.2
France....................................... 2,099.6 1,801.9 1,519.6
Other Europe................................. 2,126.8 1,140.4 1,001.7
Rest of World................................ 1,142.1 787.4 518.6
Corporate.................................... 1,932.5 1,024.5 505.2
-------- -------- --------
Total identifiable assets.................. $8,768.1 $8,987.1 $4,652.3
======== ======== ========
</TABLE>
In 1996, U.S. income before income taxes ("IBT") included $97.4 million of
charges related to the reassessment of certain intangibles and fixed asset
carrying values associated with the ex-vivo cell processing initiatives of
AIS. France IBT included $23.2 million of gains on the sale of nonstrategic
assets. Other Europe IBT included $87.5 million of gains on the sales of
nonstrategic assets including certain self-medication product rights.
Corporate IBT reflected income from equity affiliates totaling $83.0 million
which included $44.0 million of charges associated with the estimated impact
of Centeon's voluntary recall of all in-date lots of albumin products.
In 1995, U.S. IBT included $13.1 million of restructuring charges and $35.6
million of AIS-related acquired research and development. France IBT included
$22.8 million from gains on sales of certain product rights. Other Europe IBT
included $46.9 million of restructuring charges and $37.3 million of other
charges related to the Fisons plc acquisition, including acquired research and
development expense.
In 1994, U.S. IBT included gains on asset sales, net of restructuring
charges, of $15.1 million. France and Other Europe IBT included $49.0 million
and $28.8 million, respectively, of restructuring charges, net of gains on
sales of assets. The Rest of World area IBT included restructuring charges of
$13.2 million.
For presentation purposes, goodwill and intangibles and related amortization
expense recorded in connection with the acquisition of Fisons were allocated
to the U.S. at December 31, 1995. In 1996, these balances were reflected in
the appropriate geographic region.
NOTE 21. RELATED PARTY TRANSACTIONS
RHONE-POULENC S.A.
The entities comprising the Company manage their cash separately. In the
largest countries such as the U.S., France, the U.K. and Germany, the local
entities have access to RP cash pooling arrangements whereby they can, at
their own request, lend to or borrow from RP at market terms and conditions.
IV-26
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
Amounts receivable from RP and affiliates totaled $48.9 million and $61.3
million at December 31, 1996 and 1995, respectively. The 1996 balance included
$6.3 million of accounts receivable from sales of products and services to RP
(1995: $8.5 million) and $39.4 million classified as other current assets
(1995: $36.8 million).
Accounts payable related to purchase of materials and services from RP and
affiliates were $16.8 million at December 31, 1996 (1995: $12.2 million);
accrued and other liabilities due to RP at December 31, 1996 were $30.0
million (1995: $20.9 million).
In 1996, sales to RP and affiliates were $31.3 million (1995: $31.1 million;
1994: $29.7 million). Materials purchased from RP totaled $38.7 million in
1996 (1995: $41.4 million; 1994: $36.8 million).
At December 31, 1996, debt with RP and affiliates totaled $259.8 million
(1995: $653.0 million). Interest expense incurred with respect to RP
indebtedness in 1996 was $22.3 million (1995: $12.4 million; 1994: $15.8
million).
RP charges the Company for expenses incurred on its behalf, including
research, data processing, insurance, legal, tax, advertising, public
relations and management fees. Such charges are reflected in the financial
statements and amounted to approximately $24.0 million in 1996 (1995: $23.6
million; 1994: $24.5 million). Management believes that the expenses so
charged are representative of amounts that the Company would have incurred if
it had been operated as an unaffiliated entity.
In the 1995 second quarter, the Company acquired Cooper and a pharmaceutical
business in Brazil from RP for cash and preferred stock of an RPR subsidiary
aggregating approximately $273.2 million. The preferred shares, accounted for
as minority interest in other liabilities, have a liquidation preference
approximating FF645.0 million (approximately $123.1 million) and pay dividends
of 7.5% per annum on a stated value of FF145.0 million. The acquisition
agreements call for potential adjustments to the purchase price of the
businesses based on several factors, including earnings performance.
In December 1995, the Company issued $500.0 million of undated capital
equity notes to RP. Semiannual remuneration on the unpaid principal balance of
the equity notes is based on LIBOR plus a margin and approximated $35.2
million in 1996.
CENTEON
The Company and Centeon participate in a cash pooling arrangement whereby
the entities comprising Centeon can borrow from or lend to RPR at market terms
and conditions. Receivables and investments related to Centeon classified as
current assets totaled $50.2 million at December 31, 1996. At December 31,
1996, the Company's net investment in capital leasing arrangements with
Centeon totaled $59.3 million; related rental income for the year totaled $3.6
million. Current liabilities due to Centeon totaled $35.3 million. Notes
payable to Centeon totaled $8.4 million at December 31, 1996.
Purchases of certain plasma-based products from Centeon totaled $27.8
million in 1996. The Company is a party to a toll manufacturing agreement with
Centeon with respect to the manufacture, finishing and/or packaging of certain
pharmaceutical compounds and products. Charges at full standard cost to RPR
under this agreement totaled $49.5 million in 1996.
In 1996, the Company received a net cash distribution from Centeon totaling
$71.3 million.
The Company and Centeon have entered into certain service agreements which
are generally renewable on an annual basis. The Company charges Centeon for
such services as treasury, accounting, information systems, product
distribution, tax and legal. These charges approximated $6.0 million in 1996.
IV-27
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 22. CONTINGENCIES
The Company is involved in litigation incidental to its business including,
but not limited to: (1) approximately 541 pending lawsuits in the United
States, Canada and Ireland against the Company and its Armour Pharmaceutical
Company subsidiary ("Armour"), in which it is claimed by individuals infected
with the Human Immunodeficiency Virus ("HIV") that their infection with HIV
and, in some cases, resulting illnesses, including Acquired Immune Deficiency
Syndrome-related conditions or death therefrom, may have been caused by
administration of anti-hemophilic factor ("AHF") concentrates processed by
Armour in the early and mid-1980's. Armour has also been named as a defendant
in certain proposed class action lawsuits filed on behalf of HIV-infected
hemophiliacs and their families. None of these cases involve Armour's
currently distributed AHF concentrates. In August 1996, the Company, with
three other U.S. plasma fractionators defending the U.S. AHF litigation,
signed a Settlement Agreement with the plaintiffs with respect to this
litigation which, subject to certain conditions, provides for payment of
$100,000 to each eligible claimant or claimant group and the payment of up to
$40 million in attorneys fees. One significant condition of the settlement is
that potential subrogation claims by third party medical providers be resolved
to the mutual satisfaction of the parties and that the class members'
eligibility for federal program entitlements be maintained. The Company and
the other fractionator-defendants are working with the plaintiffs' counsel to
resolve these issues; (2) legal actions pending against one or more
subsidiaries of the Company and various groupings of more than one hundred
pharmaceutical companies, in which it is generally alleged that certain
individuals were injured as a result of the development of various
reproductive tract abnormalities because of in utero exposure to
diethylstilbestrol ("DES") (typically, two former operating subsidiaries of
the Company are named as defendants, along with numerous other DES
manufacturers, when the claimant is unable to identify the manufacturer); (3)
antitrust actions alleging that certain pharmaceutical companies, including
the Company, engaged in price discrimination practices to the detriment of
certain independent community pharmacists and consumers; and (4) alleged
breach of contract by a subsidiary of the Company with respect to agreements
involving a bisphosphonate compound and Lozol(R).
The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows Statement of Financial
Accounting Standards No. 5 in determining whether to recognize losses and
accrue liabilities relating to such matters. Accordingly, the Company
recognizes a loss if available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company estimates such losses
on the basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence. If a contingent loss is not probable but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position, results of
operations or cash flows.
The Company has been advised of its potential liability related to alleged
past waste disposal practices, including potential involvement at five sites
on the U.S. National Priority List created by the Comprehensive Environmental
Response Compensation and Liability Act (Superfund). For the majority of these
sites, the Company's estimated liability is not significant. With respect to
two of the sites, the Company is currently not able to estimate its share of
potential liability as the assessment of site conditions, the identification
of remediation methods and costs, and the quantification of relative
contributions among potentially responsible parties have not yet advanced to
the stage where a reasonable estimate of loss can be made.
As of December 31, 1996, the Company had unused standby letters of credit
outstanding of $101.5 million. The letters of credit are issued primarily in
the form of guarantees or performance bonds.
IV-28
<PAGE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Rhone-Poulenc Rorer Inc. is responsible for the
information and representations contained in this report. Management believes
that the financial statements have been prepared in conformity with generally
accepted accounting principles and that the other information in this annual
report is consistent with those statements. In preparing the financial
statements, management is required to include amounts based on estimates and
judgments which it believes are reasonable under the circumstances.
In fulfilling its responsibilities for the integrity of the data presented
and to safeguard the Company's assets, management employs a system of internal
accounting controls designed to provide reasonable assurance, at appropriate
cost, that the Company's assets are protected and that transactions are
appropriately authorized, recorded and summarized. This system of control is
supported by the selection of qualified personnel, by organizational
assignments that provide appropriate delegation of authority and division of
responsibilities, and by the dissemination of written policies and procedures.
This control structure is further reinforced by a program of internal audits
including a policy that requires responsive action by management.
Coopers & Lybrand L.L.P., the Company's independent accountants, performs
audits in accordance with generally accepted auditing standards. The
independent accountants conduct a review of internal accounting controls to
the extent required by generally accepted auditing standards and perform such
tests and procedures as they deem necessary to arrive at an opinion on the
fairness of the financial statements presented herein.
The Board of Directors, through the Audit Committee comprised solely of
directors who are not employees of the Company, meets with management, the
internal auditors and the independent accountants to ensure that each is
properly discharging its respective responsibilities. Both the independent
accountants and the internal auditors have free access to the Audit Committee,
without management present, to discuss the results of their work, including
internal accounting controls and the quality of financial reporting. The Audit
Committee met three times in 1996.
/s/ Michel de Rosen
- -------------------------------------
MICHEL DE ROSEN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ Patrick Langlois
- -------------------------------------
PATRICK LANGLOIS
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
/s/ Philippe Maitre
- -------------------------------------
PHILIPPE MAITRE
VICE PRESIDENT AND CORPORATE
CONTROLLER
IV-29
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
QUARTERLY DATA (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED 1996 QUARTER ENDED 1995
------------------------------------------- -------------------------------------------
RESTATED
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $1,272.4 $1,346.1 $1,278.0 $1,524.1 $1,098.4 $1,241.3 $1,212.7 $1,589.7
Gross profit............ 838.2 902.3 907.4 1,106.7 694.4 813.6 792.8 1,094.9
Net income available to
common shareholders.... 74.0 91.9 97.4 165.4 89.5 85.7 107.3 55.3
Earnings per common
share.................. .55 .68 .72 1.21 .66 .64 .80 .41
Market price per common
share:
High................... 66.875 69.250 77.750 80.500 43.500 43.125 45.875 54.500
Low.................... 50.500 58.000 62.125 66.000 36.250 40.375 40.500 43.750
Common dividends paid... .30 .32 .32 .32 .30 .30 .30 .30
</TABLE>
- --------
Results for the third quarter of 1996 included charges of $33.8 million ($.17
per share) associated with the estimated impact of Centeon's voluntary
worldwide recall of albumin products sold under the trademarks Albuminar(R)
and Plasma-Plex(R).
Results for the fourth quarter of 1996 included charges of $102.6 million
($.50 per share) from the reassessment of certain intangibles and fixed asset
carrying values related to AIS. Fourth quarter 1996 results also included
gains on the sales of certain nonstrategic European assets totaling $110.7
million ($.51 per share).
Results for the first quarter of 1995 are restated to include the results of
Cooperation Pharmaceutique Francaise and a pharmaceutical business in Brazil,
acquired from Rhone-Poulenc S.A., and earnings per common share for the period
reflect pro forma adjustments giving effect to interest and preferred
dividends relative to these acquisitions.
Results for the first quarter of 1995 included pretax income of $11.1 million
($.04 per share) from gains on sales of certain assets and product rights
($49.5 million), including the Company's U.S. and Canadian over-the-counter
businesses, net of charges for acquired research and development expense
($13.0 million) and the reassessment of certain asset carrying values ($25.4
million).
Results for the fourth quarter of 1995 included $126.5 million ($.75 per
share) of acquisition-related restructuring and other charges, including $60.0
million of pretax restructuring charges, $43.6 million of acquired research
and development charged to operations and $22.9 million of integration and
other costs.
Earnings per common share amounts for each quarter are required to be computed
independently and, therefore, the sum of the four quarters does not
necessarily equal the amount computed for the total year.
Rhone-Poulenc Rorer Inc. (ticker symbol: RPR) common shares are listed and
traded on the New York and Paris stock exchanges, and are traded, unlisted, on
the Philadelphia, Boston, Pacific and Midwest stock exchanges. On February 28,
1997, there were 7,339 holders of record of RPR common shares.
IV-30
<PAGE>
SCHEDULE V
UNAUDITED FINANCIAL STATEMENTS (AND RELATED NOTES)
FOR THE COMPANY FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Rhone-Poulenc Rorer Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Rhone-Poulenc Rorer Inc. and subsidiaries as of June 30, 1997, and the related
condensed consolidated statements of income and cash flows for the three- and
six-month periods ended June 30, 1997 and 1996. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Rhone-Poulenc Rorer Inc. and
subsidiaries as of December 31, 1996, and the related consolidated statements
of income and cash flows for the year then ended (not presented herein); and
in our report dated January 22, 1997, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 1996, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
_____________________________________
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
July 17, 1997
V-1
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED--AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- -------------------
1997 1996 1997 1996
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales.......................... $ 1,238.0 $ 1,346.1 $2,323.8 $ 2,618.5
Cost of products sold.............. 367.0 443.8 691.4 878.0
Selling, delivery and
administrative expenses........... 500.4 532.5 946.2 1,046.7
Research and development expenses.. 220.2 214.4 405.2 414.3
--------- --------- -------- ---------
Operating income................. 150.4 155.4 281.0 279.5
Interest expense, net.............. 37.5 43.5 76.2 84.5
Other (income), net................ (15.4) (36.6) (20.8) (77.4)
--------- --------- -------- ---------
Income before income taxes....... 128.3 148.5 225.6 272.4
Provision for income taxes......... 39.6 46.3 70.1 85.2
--------- --------- -------- ---------
Net income....................... 88.7 102.2 155.5 187.2
Dividends on preferred stock and
remuneration on capital equity
notes............................. 11.8 10.3 21.9 21.3
--------- --------- -------- ---------
Net income available to common
shareholders.................... $ 76.9 $ 91.9 $ 133.6 $ 165.9
========= ========= ======== =========
Primary earnings per common share.. $ .56 $ .68 $ .98 $ 1.23
========= ========= ======== =========
Cash dividends per common share.... $ .32 $ .32 $ .64 $ .62
========= ========= ======== =========
Average common shares outstanding.. 137.1 135.7 137.0 135.3
========= ========= ======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
V-2
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED--DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents............................... $ 114.4 $ 100.6
Cash pooling arrangements with Rhone-Poulenc S.A. ...... 4.2 3.2
Short-term investments and notes receivable............. 63.1 38.7
Trade accounts receivable, less reserves of $88.0 (1996:
$111.3)................................................ 858.6 984.1
Inventories............................................. 796.7 800.7
Other current assets.................................... 762.3 846.2
-------- --------
Total current assets................................ 2,599.3 2,773.5
Time deposits, at cost.................................. 128.4 128.4
Property, plant and equipment, net of accumulated
depreciation of $1,435.5 (1996: $1,461.1).............. 1,426.5 1,525.9
Goodwill, net of accumulated amortization of $320.3
(1996: $294.9)......................................... 2,601.0 2,739.0
Intangibles, net of accumulated amortization of $252.2
(1996: $231.4)......................................... 707.4 766.7
Other assets............................................ 839.1 834.6
-------- --------
Total assets........................................ $8,301.7 $8,768.1
======== ========
LIABILITIES
Current:
Short-term debt......................................... $ 157.9 $ 126.7
Accounts payable........................................ 427.1 594.7
Other current liabilities............................... 1,109.4 1,331.5
-------- --------
Total current liabilities........................... 1,694.4 2,052.9
Long-term debt.......................................... 2,432.0 2,272.0
Notes payable to Rhone-Poulenc S.A. & affiliates........ 187.9 253.0
Deferred income taxes................................... 241.6 218.0
Other liabilities, including minority interests......... 1,208.4 1,322.4
-------- --------
Total liabilities................................... 5,764.3 6,118.3
Contingencies...........................................
SHAREHOLDERS' EQUITY
Money market preferred stock, without par value
(liquidation preference $100,000 per share);
authorized, issued and outstanding 1,750 shares........ 175.0 175.0
Capital equity notes.................................... 500.0 500.0
Common stock, without par value; stated value $1 per
share; authorized 600,000,000 shares; issued and
outstanding 137,401,319 shares (1996: 136,615,917
shares)................................................ 142.6 141.6
Capital in excess of stated value....................... 273.9 234.8
Retained earnings....................................... 1,883.8 1,837.9
Employee Benefits Trust................................. (198.1) (185.7)
Cumulative translation adjustments...................... (239.8) (53.8)
-------- --------
Total shareholders' equity.......................... 2,537.4 2,649.8
-------- --------
Total liabilities and shareholders' equity.......... $8,301.7 $8,768.1
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
V-3
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED--DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities................ $ 13.0 $ 46.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (130.5) (165.9)
Assets sold, net........................................... 25.7 226.0
Purchases of investments/product rights.................... (44.6) (49.7)
Sales of investments/product rights........................ 20.9 29.5
Net investment hedging, net................................ 7.7 --
-------- --------
Net cash provided by (used in) investing activities.... (120.8) 39.9
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt borrowings (repayments):
Short-term debt, net..................................... 40.3 (71.7)
Long-term debt, net...................................... 168.5 (9.9)
Dividends and remuneration paid............................ (109.5) (105.2)
Issuances of common stock.................................. 39.8 52.5
Repurchases of common stock for the Employee Benefits
Trust..................................................... (12.4) --
-------- --------
Net cash provided by (used in) financing activities.... 126.7 (134.3)
Effect of exchange rate changes on cash and cash
equivalents............................................... (5.1) (6.6)
-------- --------
Net increase (decrease) in cash and cash equivalents....... 13.8 (54.5)
Cash and cash equivalents at beginning of period........... 100.6 115.4
-------- --------
Cash and cash equivalents at end of period................. $ 114.4 $ 60.9
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
V-4
<PAGE>
RHONE-POULENC RORER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. RESULTS FOR INTERIM PERIODS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect the adjustments, all of which are of
a normal recurring nature, necessary for a fair presentation of financial
position, cash flows and results of operations for the periods presented.
Certain prior year items have been reclassified to conform to current
classifications.
The Company's consolidated financial statements are prepared on a basis in
conformity with U.S. generally accepted accounting principles ("U.S. GAAP").
The preparation of the financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. See Note 10 for disclosure of contingent liabilities and related
matters.
The statements are presented in accordance with the requirements of Form 10-
Q and do not include all disclosures required by generally accepted accounting
principles or those made in the Annual Report on Form 10-K. The Annual Report
on Form 10-K for the year 1996 is on file with the Securities and Exchange
Commission and should be read in conjunction with these condensed consolidated
financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share,"
effective for periods ending after December 15, 1997. The Statement simplifies
earnings per share calculations and requires presentation of both basic and
diluted earnings per share on the face of the statement of income. Adoption of
SFAS No. 128 will not have a material impact on the Company's earnings per
share calculations.
NOTE 2. ACCOUNTING POLICIES FOR DERIVATIVE FINANCIAL INSTRUMENTS
FOREIGN CURRENCY EXCHANGE CONTRACTS
Foreign Currency Transactions
The Company enters into foreign currency exchange contracts to minimize
exposure of foreign currency transactions (such as export sales, raw materials
purchases, and short-term intercompany financings) and firm commitments to
fluctuating exchange rates. The Company's foreign currency transaction hedges
are executed centrally to minimize transaction costs and to monitor
consolidated net exposures in all currencies and the effectiveness of the
hedging relationships. Contracts hedging foreign currency transactions are
marked to market at each balance sheet date under the fair value method; the
resulting gains or losses are recognized in other (income), net, offsetting
the corresponding losses or gains on the transactions being hedged. Cash flows
associated with these foreign currency exchange contracts are classified in
the same category as the hedged transactions.
The Company may also seek to minimize exposure of its non-U.S.-based
forecasted quarterly pretax earnings to foreign currency fluctuations by
utilizing foreign currency exchange contracts. These contracts are marked to
market in other (income), net at each balance sheet date. Related cash flows
are classified as cash flows from operating activities.
Net Investment Hedges
The Company may utilize foreign currency exchange contracts and foreign
currency-denominated borrowings to limit the exposure of its net investments
in foreign subsidiaries to currency fluctuations and
V-5
<PAGE>
RHONE-POULENC RORER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
thereby limit the volatility of reported equity. These arrangements are
designated as hedges of the Company's net foreign investments. Both realized
and unrealized gains and losses on these arrangements which offset the gains
and losses on the related net investments are recorded as cumulative
translation adjustments ("CTA") in shareholders' equity. Cash flows associated
with the hedging instruments are classified as cash flows from investing
activities. If a foreign currency-denominated borrowing or foreign currency
exchange contract that qualifies as a hedge of a net investment is terminated,
any gains or losses previously recorded in CTA remain in CTA. These gains or
losses would be recognized upon liquidation or sale of all or substantially
all of the net foreign investment.
The net receivables (payables) related to the Company's foreign currency
exchange contracts are included in other current assets (liabilities).
Interest Rate Swap Contracts
The Company may enter into interest rate swap contracts to manage its
exposures to movements in interest rates and to minimize its overall cost of
borrowings. The net receivables (payables) under interest rate swap contracts
are recorded in other current assets (liabilities) and recognized as
adjustments to interest expense. Cash flows related to interest rate swap
contracts are included in cash flows from operating activities.
If an interest rate swap contract that hedges underlying debt on the balance
sheet is terminated, the gain or loss on the contract is deferred and
amortized into income as an adjustment to interest expense over the shorter of
the remaining life of the terminated swap contract or the remaining time to
maturity of the hedged debt. If an interest rate swap contract remains
outstanding after termination of the hedging relationship, changes in the
market value of the contract are recognized currently in income.
NOTE 3. LICENSING AGREEMENT
In June 1997, the Company licensed to Watson Laboratories, Inc. ("Watson")
exclusive worldwide (except for New Zealand and Korea) distribution rights for
Dilacor XR(R) and its generic equivalents for a period of four and one-half
years after which time Watson has the option to purchase the product rights.
Over the licensing period, RPR expects to receive from Watson annual licensing
fees approximating $135.0 million and royalties on future sales of diltiazem
products. In connection with the transaction, the Company transferred
remaining related inventory to Watson in the second quarter for a value
approximating its normal wholesaler selling price. The Company also recorded a
pretax gain of $16.0 million in the second quarter on the termination of a
generics diltiazem-related partnership with Watson. In July 1997, the Company
received a $55 million cash payment from Watson representing the prepayment of
both the second half of 1997 licensing fees/royalties and the purchase option,
which is refundable if not exercised by Watson.
NOTE 4. OTHER (INCOME), NET
CENTEON
Losses from equity affiliates, principally the Company's interest in the
Centeon joint venture, totaled $14.2 million in the second quarter of 1997 and
$19.8 million on a year-to date basis as compared with income of $40.6 million
and $77.7 million, respectively, for the comparable prior year periods.
Centeon's first half of 1997 results were adversely affected by the temporary
suspension of production and distribution at its U.S. facility related to an
October 1996 voluntary worldwide recall of Albuminar(R)/Plasma-Plex(R)
products and a January 1997 consent decree with the U.S. Food and Drug
Administration ("FDA"). The negative contribution from Centeon
V-6
<PAGE>
RHONE-POULENC RORER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
for the first six months of 1997 was also impacted by $31.5 million of pretax
recall-related and manufacturing start-up costs, including costs related to
work-in-process and idle capacity issues and costs associated with compliance
with the consent decree.
In May 1997, the FDA notified Centeon that it appeared to be in compliance
with current Good Manufacturing Practices and authorized resumption of
distribution of plasma-based products, subject to FDA testing and lot release,
and pharmaceutical products at its U.S. facility. Based on a phased-in
production schedule, newly-manufactured plasma-based products were sent to the
FDA for lot release in June and distribution of new production has begun on a
limited basis. Centeon expects product distribution to ramp up gradually over
the remainder of the year.
Centeon sales for the second quarter of 1997, including sales to certain RPR
affiliates, totaled $175.9 million (1996: $259.0 million). Gross margin
approximated 28% of sales (1996: 48%). Losses before the effect of income
taxes totaled $17.8 million compared to income before taxes ("IBT") of $59.6
million in 1996. On a year-to-date basis, sales totaled $348.0 million (1996:
$496.7 million). Gross margin approximated 32% (1996: 52%) and losses before
the effect of income taxes totaled $16.5 million (1996: IBT of $141.6)
Other Items
Other (income), net included a pretax gain of $16.0 million on the
termination of a partnership arrangement with Watson.
Other (income), net also included net gains totaling $7.3 million and $14.4
million for the three- and six-month periods, respectively, on foreign
currency exchange contracts used to hedge a portion of the Company's non-U.S.-
based forecasted quarterly pretax earnings. Similar gains totaled $4.7 million
for both the comparable prior year periods.
NOTE 5. INCOME TAXES
The Company records income tax expense based on an estimated full year
effective income tax rate. The year-to-date June 30 reported effective income
tax rate approximated 31.1% in 1997 compared with 31.3% in 1996.
In July 1997, the French government proposed legislation to increase the
corporate income tax on both ordinary income and capital gains. The
legislation is expected to be enacted in September 1997 with retroactive
effect to January 1, 1997. The Company is in the process of quantifying the
impact such changes would have on its worldwide effective income tax rate, but
estimates that the legislation has the potential to increase the Company's
effective income tax rate by up to one and one-half percentage points.
NOTE 6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Finished goods......................................... $364.7 $376.9
Work in process........................................ 142.7 159.8
Raw materials and supplies............................. 289.3 264.0
------ ------
$796.7 $800.7
====== ======
</TABLE>
V-7
<PAGE>
RHONE-POULENC RORER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 7. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MONEY
MARKET CAPITAL COMMON CAPITAL IN EMPLOYEE CUMULATIVE
PREFERRED EQUITY STOCK AT EXCESS OF RETAINED BENEFITS TRANSLATION
STOCK NOTES STATED VALUE STATED VALUE EARNINGS TRUST ADJUSTMENTS
--------- ------- ------------ ------------ -------- -------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997................... $175.0 $500.0 $141.6 $234.8 $1,837.9 $ (185.7) $ (53.8)
Net income.............. 155.5
Cash dividends, $.64 per
common share........... (87.7)
Dividends on preferred
stock.................. (4.7)
Remuneration on capital
equity notes........... (17.2)
Repurchase of shares for
Employee Benefits
Trust.................. (12.4)
Issuance of shares under
employee benefit
plans.................. 1.0 39.1
Translation adjust-
ments.................. (186.0)
Balance, June 30, 1997.. $175.0 $500.0 $142.6 $273.9 $1,883.8 $(198.1) $(239.8)
====== ====== ====== ====== ======== ======== =======
</TABLE>
In 1997, the Company's Board of Directors approved the open market
repurchase from time to time of up to five million of the Company's common
shares. In the second quarter of 1997, the Company repurchased approximately
168,000 of its common shares at a cost totaling $12.4 million. These shares
are held in an Employee Benefits Trust to fund future employee benefits in the
United States.
In August 1997, the Company redeemed the outstanding 750 shares of Series 1
money market preferred stock for $75.0 million plus accrued dividends.
NOTE 8. RESTRUCTURING
In December 1995, the Company established a combined $160.0 million reserve
related to the restructuring of Fisons and RPR operations as a direct result
of the acquisition of Fisons. The liability represented expected cash outlays,
primarily severance-related, associated with eliminating approximately 1,900
positions principally in the marketing, administrative and manufacturing
functions. At June 30, 1997, the remaining 1995 restructuring reserve of $28.9
million represented outstanding social costs. For the three- and six-month
periods ended June 30, 1997, cash outlays associated with the 1995
restructuring program totaled $2.7 million and $10.4 million, respectively
(1996: $49.0 million and $76.8 million, respectively).
NOTE 9. RELATED PARTY TRANSACTIONS
RHONE-POULENC S.A.
The entities comprising the Company manage their cash separately. In the
largest countries such as the U.S., France, the U.K. and Germany, the local
entities have access to RP cash pooling arrangements whereby they can, at
their own request, lend to or borrow from RP at market terms and conditions.
Receivables from RP at June 30, 1997 included $8.9 million in accounts
receivable from sales of products to RP, $16.0 million classified as other
current assets, and $6.1 million classified as other non-current assets.
V-8
<PAGE>
RHONE-POULENC RORER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Accounts payable related to the purchase of materials and services from RP
were $13.6 million at June 30, 1997; accrued and other liabilities due to RP
totaled $16.6 million. As of June 30,1997 the Company had $2.7 million of
short-term and $187.9 million of long-term debt outstanding with RP.
Sales to RP totaled $6.0 million in the second quarter and $10.7 million on
a year-to-date basis. Services purchased from and interest paid to RP totaled
$7.4 million in the second quarter and $15.4 million for the six-month period.
For the comparable 1996 periods, sales to RP were $7.9 million and $17.7
million respectively. Materials and services purchased from and interest paid
to RP totaled $4.3 million and $16.0 million, respectively.
In connection with the 1995 acquisitions from RP, a subsidiary of the
Company issued preferred shares to RP which have a liquidation preference
approximating 645.0 million French francs (approximately $109.7 million) and
pay dividends of 7.5% per annum on a stated value of 145.0 million French
francs. The preferred shares are accounted for as minority interest and are
reflected in other liabilities. The acquisition agreements call for potential
adjustments to the purchase price of the businesses based on several factors,
including earnings performance.
CENTEON
Short-term notes receivable from Centeon, which bear interest after 45 days
at LIBOR plus a margin, totaled $33.5 million at June 30, 1997. Other current
receivables related to Centeon totaled $2.0 million at June 30, 1997. At June
30, 1997, the Company's net investment in capital leasing arrangements with
Centeon totaled $55.9 million. In 1997, the Company issued a shareholders loan
to Centeon totaling $22.0 million and bearing interest at LIBOR plus a margin.
The shareholder loan is due on September 30, 1997, but is renewable for
successive 90-day periods, ending on December 31, 1999, subject to certain
partial repayment provisions and financial ratio requirements of Centeon.
Current liabilities due to Centeon at June 30, 1997 totaled $6.2 million;
notes payable to Centeon totaled $18.3 million. In the second quarter, the
Company made a $16.0 million cash payment to Centeon representing the return
of an excess distribution made in 1996 of RPR's share of Centeon's 1996
earnings.
NOTE 10. CONTINGENCIES
The Company is involved in litigation incidental to its business, including,
but not limited to: (1) approximately 557 pending lawsuits in the United
States, Canada and Ireland against the Company and its Armour Pharmaceutical
Company subsidiary ("Armour"), in which it is claimed by individuals infected
with the Human Immunodeficiency Virus ("HIV") that their infection with HIV
and, in some cases, resulting illnesses, including Acquired Immune Deficiency
Syndrome-related conditions or death therefrom, may have been caused by
administration of antihemophilic factor ("AHF") concentrates processed by
Armour in the early-and mid-1980's. Armour has also been named as a defendant
in certain proposed class action lawsuits filed on behalf of HIV-infected
hemophiliacs and their families. None of the cases involves Armour's currently
distributed AHF concentrates. In August 1996, the Company, with the three
other U.S. plasma fractionators defending the U.S. AHF litigation, signed a
Settlement Agreement with the plaintiffs with respect to this litigation
which, subject to certain conditions, provides for payment of $100,000 to each
eligible claimant or claimant group and the payment of up to $40 million in
attorneys fees. Following a fairness hearing in May 1997, the court declared
the class settlement offer to be fair to the class. In July 1997, two appeals
filed with respect to the settlement were withdrawn and then dismissed by the
Seventh Circuit Court of Appeals. Payment into the settlement fund will begin
in August 1997; (2) antitrust actions alleging that certain pharmaceutical
companies, including the Company, engaged in price discrimination practices to
the detriment of certain independent community pharmacists and consumers; and
(3) alleged breach of contract by a subsidiary of the Company with respect to
agreements involving a bisphosphonate compound and Lozol(R).
V-9
<PAGE>
RHONE-POULENC RORER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
additional lawsuits related to these matters may require substantial legal
defense expenditures. The Company follows Statement of Financial Accounting
Standards No. 5 in determining whether to recognize losses and accrue
liabilities relating to such matters. Accordingly, the Company recognizes a
loss if available information indicates that a loss or range of losses is
probable and reasonably estimable. The Company estimates such losses on the
basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence. If a contingent loss is not probable but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position, results of
operations or cash flows.
The Company has been advised of its potential liability related to alleged
past waste disposal practices, including potential involvement at three sites
on the U.S. National Priority List created by the Comprehensive Environmental
Response Compensation and Liability Act (Superfund). The Company's estimated
liability for these sites is not significant.
V-10
<PAGE>
SCHEDULE VI
SUMMARY FINANCIAL STATEMENT FOR PURCHASER
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
Purchaser's Consolidated Financial Statements, and the Notes related
thereto, are incorporated herein by reference to pages F-1 to F-29 of the
Purchaser's Annual Report on Form 20-F for the fiscal year ended December 31,
1996. Such report and other information can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048, and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Information regarding the public reference facilities may be
obtained from the Commission by telephoning 1-800-SEC-0330. Copies of such
materials may also be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Certain reports and other information concerning the Company may also
be inspected at the offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
Solely for the convenience of the reader, summary financial information
regarding Purchaser is set forth below. Such summary information is qualified
in its entirety by reference to the Consolidated Financial Statements, and the
Notes related thereto contained in the Purchaser's 1996 Form 20-F,
incorporated herein by reference.
<TABLE>
<CAPTION>
1996 1995
------------- -------------
(IN MILLIONS FRENCH FRANCS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales........................................ 85,818 84,793
Operating expenses
Production costs and expenses.................. (54,282) (54,829)
Administrative and selling expenses............ (22,041) (20,781)
Amortization of intangible assets.............. (1,623) (1,235)
Provision for restructuration.................. (457) (1,095)
Other charges--Fisons/AIS...................... (523) (630)
------------- -------------
Operating income................................. 6,892 6,223
Other income (expenses)
Equity in earnings (losses) of affiliated com-
panies........................................ 829 406
Interest expense--net.......................... (2,151) (1,726)
Gains on sales of assets--net.................... 844 100
Other income--net................................ (228) (45)
Income before taxes and minority interests....... 6,186 4,958
Provision for income taxes....................... (1,597) (887)
Income before minority interests................. 4,589 4,071
Minority interests in net income of consolidated
subsidiaries.................................... (718) (753)
------------- -------------
Net income before preferred remuneration..... 3,871 3,318
Preferred remuneration........................... (1,131) (1,184)
Net income available for distribution to com-
mon shareholders............................ 2,740 2,134
============= =============
PER SHARE IN FF:
. Common stock--Ordinary shares "A".............. 8.44 6.71
. Preferred shares "B"........................... 9.69 7.96
BALANCE SHEET DATA:
Current Assets
Cash........................................... 1,040 1,050
Short-term deposits............................ 3,100 1,452
Marketable securities.......................... 1,321 1,821
Net trade accounts and notes receivable........ 12,357 12,090
Inventories.................................... 16,266 15,583
Prepaid expenses and other current assets...... 12,830 13,355
------------- -------------
Total current assets......................... 46,914 45,351
</TABLE>
VI-1
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Investments and other assets
Investments in equity method investees..................... 3,721 3,938
Deposits and long-term receivables......................... 2,085 1,839
Other investments.......................................... 2,771 2,580
Deferred charges and other assets.......................... 9,816 7,791
------- -------
18,393 16,148
Property, plant and equipment
At cost.................................................... 83,796 79,407
Less: accumulated depreciation............................. (46,901) (44,388)
------- -------
36,895 35,019
Intangible assets
Gross value................................................ 46,728 44,010
Less accumulated amortization.............................. (7,090) (5,120)
39,638 38,890
------- -------
TOTAL ASSETS............................................. 141,840 135,408
======= =======
Current liabilities
Bank overdrafts............................................ 2,991 2,577
Trade accounts and notes payable........................... 8,816 8,974
Current portion of long-term debt.......................... 2,624 1,981
Short-term borrowings...................................... 6,673 9,881
Other current liabilities.................................. 18,141 16,699
------- -------
Total current liabilities................................ 39,245 40,112
======= =======
Long-term debt
Debentures................................................. 9,101 9,203
Bank borrowings............................................ 17,840 17,276
------- -------
26,941 26,479
Other long-term liabilities
Deferred income taxes...................................... 3,595 2,719
Provision for supplementary pension and retirement indemni-
ties...................................................... 6,681 6,275
Provision for restructuration.............................. 740 1,018
Other provisions long-term liabilities..................... 6,594 5,770
------- -------
17,610 15,782
Commitments and contingencies
Mandatorily redeemable partnership interest................ 2,429 2,273
Minority interests in net assets of consolidated subsidiar-
ies....................................................... 6,334 5,763
Amortizable preferred securities........................... 2,728 2,830
Shareholders' equity
Participating shares--1983 and Series A-1989............... 996 997
Capital equity notes--1986, 1991 and 1993.................. 5,767 5,767
Preference shares, Series A--1993.......................... 2,312 2,312
Preferred shares "B", Par value FF25: 926,820 outstanding.. 23 23
Common stock--Ordinary shares "A", Par value
FF25:327,320,864 outstanding.............................. 8,183 8,003
Additional paid-in capital of Rhone-Poulenc S.A............ 16,146 15,558
Retained earnings and other additional paid-in capital..... 17,877 15,903
Translation reserve........................................ (4,751) (6,394)
Total shareholders' equity............................... 46,553 42,169
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... 141,840 135,408
======= =======
</TABLE>
VI-2
<PAGE>
Facsimiles of the Letter of Transmittal, properly completed and duly signed,
will be accepted. The Letter of Transmittal and certificates evidencing Shares
and any other required documents should be sent or delivered by each
shareholder or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY MAIL: BY FACSIMILE BY HAND: BY OVERNIGHT
TRANSMISSION: COURIER:
CHASEMELLON CHASEMELLON
SHAREHOLDER (FOR ELIGIBLE SHAREHOLDER CHASEMELLON
SERVICES, L.L.C. INSTITUTIONS SERVICES, L.L.C. SHAREHOLDER
P.O. BOX ONLY) (201) 329- 120 BROADWAY, SERVICES
3305SOUTH 8936 13TH FLOOR NEW L.L.C. 85
HACKENSACK, NJ YORK, NY 10271 CHALLENGER
07606 ATTN: ROADMAIL DROP
ATTN: REORGANIZATION REORG. DEPT.
REORGANIZATION DEPT. RIDGEFIELD
DEPT. PARK, NJ 07660
ATTN:
REORGANIZATION
DEPT.
CONFIRM BY
TELEPHONE:
(201) 296-4860
--------------
Questions or requests for assistance may be directed to the Information
Agent, the Dealer Manager or the Co-Dealer Manager at their respective
addresses and telephone numbers listed below. Additional copies of this Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery
may be obtained from the Information Agent. A shareholder may also contact
brokers, dealers, commercial banks or trust companies for assistance
concerning the Offer.
The Information Agent for the Offer is:
[LOGO OF GEORGESON
& COMPANY INC.]
UNITED STATES: EUROPE:
Wall Street Plaza Moor House--17th Floor
New York, New York 10005 119 London Wall
Bankers and Brokers Call London EC2Y 5ET
Collect: England
(212) 440-9800 +44-171-454-7100
ALL OTHERS CALL TOLL
FREE:
(800) 223-2064
The Dealer Managers for the Offer are:
MORGAN STANLEY DEAN WITTER UBS SECURITIES
Morgan Stanley & Co. Incorporated UBS Securities LLC
1585 Broadway 299 Park Avenue
New York, New York 10036 New York, New York 10171
(212) 761-7139 Call Toll Free: 1-888-821-5176
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
(a)(1) Offer to Purchase.*+
(a)(2) Letter of Transmittal.*+
(a)(3) Letter to Company shareholders.*+
(a)(4) Opinion of Goldman, Sachs & Co., dated August 19, 1997 (incorporated by
reference to Schedule II to Purchaser's Tender Offer Statement on
Schedule 14D-1, dated August 22, 1997).*
(a)(5) Notice of Guaranteed Delivery (incorporated by reference to Exhibit
(a)(3) to Purchaser's Tender Offer Statement on Schedule 14D-1, dated
August 22, 1997).
(a)(6) Letter from Morgan Stanley & Co. Incorporated and UBS Securities LLC to
Brokers, Dealers, Commercial Banks, Trust Companies and Nominees
(incorporated by reference to Exhibit (a)(4) to Purchaser's Tender
Offer Statement on Schedule 14D-1, dated August 22, 1997).
(a)(7) Letter from Brokers, Dealers, Commercial Banks, Trust Companies and
Nominees to Clients (incorporated by reference to Exhibit (a)(5) to
Purchaser's Tender Offer Statement on Schedule 14D-1, dated August 22,
1997).
(a)(8) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (incorporated by reference to Exhibit (a)(6) to
Purchaser's Tender Offer Statement on Schedule 14D-1, dated August 22,
1997).
(a)(9) Summary Advertisement as published in The Wall Street Journal on August
22, 1997 (incorporated by reference to Exhibit (a)(7) to Purchaser's
Tender Offer Statement on Schedule 14D-1, dated August 22, 1997).
(a)(10) Press Release issued by Purchaser on August 20, 1997 (incorporated by
reference to Exhibit (a)(8) to Purchaser's Tender Offer Statement on
Schedule 14D-1, dated August 22, 1997).
(a)(11) Press Release issued by the Company on August 20, 1997.+
(a)(12) English translation of French-language Communique published in Les
Echos and La Tribune on August 22, 1997 (incorporated by reference to
Exhibit (a)(9) to Purchaser's Tender Offer Statement on Schedule 14D-
1, dated August 22, 1997).
(c)(1) Agreement and Plan of Merger dated as of August 19, 1997, among
Purchaser, the Merger Subsidiary and the Company (incorporated by
reference to Exhibit (c)(3) to Purchaser's Tender Offer Statement on
Schedule 14D-1, dated August 22, 1997).
(c)(2) Pages 8-19 of the Proxy Statement dated March 31, 1997, relating to the
Company's 1997 Annual Meeting of Shareholders.+
(c)(3) Indemnification Agreement, dated July 2, 1997, between the Company and
each of James S. Riepe, Dale F. Frey and Eric J. Topol, M.D.+
(c)(4) Article Sixth of the Amended and Restated Articles of Incorporation
(incorporated by reference to Exhibit 3(b) to the Annual Report on Form
10-K for the fiscal year ended December 31, 1996).
(c)(5) Article Seventh of the Company's Bylaws (incorporated by reference to
Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
(c)(6) Amended and Restated Stock Plan, dated March 12, 1990 (incorporated by
reference to Exhibit 10(o) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
(c)(7) Equity Compensation Plan, dated March 11, 1990 (incorporated herein by
reference to Exhibit 10(p) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
(c)(8) 1995 Equity Compensation Plan, dated March 21, 1995 (incorporated by
reference to Exhibit 10(q) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
(c)(9) Acquisition Agreement, dated as of March 12, 1990, between the Company
and Purchaser (incorporated by reference to Exhibit 1 to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, dated March
16, 1990).
(c)(10) Complaint filed in Brickell v. Rhone-Poulenc S.A. (Supreme Court of
the State of New York, County of New York, filed July 9, 1997)
(incorporated by reference to Exhibit (g)(1) to Purchaser's Tender
Offer Statement on Schedule 14D-1, dated August 22, 1997).
<PAGE>
(c)(11) Complaint filed in Steiner v. Rhone-Poulenc S.A. (United States
District Court for the Eastern District of Pennsylvania, filed July
15, 1997) (incorporated by reference to Exhibit (g)(2) to Purchaser's
Tender Offer Statement on Schedule 14D-1, dated August 22, 1997).
(c)(12) Complaint filed in Krim v. Rhone-Poulenc S.A. et. al. (New Jersey
Superior Court, Mercer County, filed July 15, 1997) (incorporated by
reference to Exhibit (g)(3) to Purchaser's Tender Offer Statement on
Schedule 14D-1, dated August 22, 1997).
(c)(13) Complaint filed in Simon v. Robert E. Cawthorn et. al. (Pennsylvania
Court of Common Pleas, Trial Division, Montgomery County, filed July
31, 1997) (incorporated by reference to Exhibit (g)(4) to Purchaser's
Tender Offer Statement on Schedule 14D-1, dated August 22, 1997).
(c)(14) Motion to Dismiss Complaint filed in Brickell v. Rhone-Poulenc S.A.
(Supreme Court of the State of New York, County of New York, filed
August 11, 1997) (incorporated by reference to Exhibit (g)(5) to
Purchaser's Tender Offer Statement on Schedule 14D-1, dated August 22,
1997).
(c)(15) Motion to Dismiss Complaint filed in Steiner v. Rhone-Poulenc S.A.
(United States District Court for the Eastern District of
Pennsylvania, filed August 6, 1997) (incorporated by reference to
Exhibit (g)(6) to Purchaser's Tender Offer Statement on Schedule 14D-
1, dated August 22, 1997).
- --------
* Included in documents mailed to shareholders.
+ Filed herewith.
<PAGE>
Exhibit (a)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
Rhone-Poulenc Rorer Inc.
PURSUANT TO THE OFFER TO PURCHASE
DATED AUGUST 22, 1997
OF
Rhone-Poulenc S.A.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY MAIL: BY FACSIMILE BY HAND: BY OVERNIGHT
CHASEMELLON TRANSMISSION: CHASEMELLON COURIER:
SHAREHOLDER (FOR ELIGIBLE SHAREHOLDER CHASEMELLON
SERVICES, L.L.C. INSTITUTIONS ONLY) SERVICES, L.L.C. SHAREHOLDER
P.O. BOX 3305 (201) 329-8936 120 BROADWAY, 13TH SERVICES L.L.C.
SOUTH HACKENSACK, CONFIRM BY FLOOR 85 CHALLENGER ROAD
NJ 07606 TELEPHONE: NEW YORK, NY 10271 MAIL DROP REORG.
ATTN: (201) 296-4860 ATTN: DEPT.
REORGANIZATION REORGANIZATION RIDGEFIELD PARK, NJ
DEPT. DEPT. 07660
ATTN:
REORGANIZATION
DEPT.
----------------
DELIVERY OF THIS LETTER OF TRANSMITTAL, OR TRANSMISSION OF INSTRUCTIONS VIA
FACSIMILE TRANSMISSION, TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES) OF
REGISTERED
HOLDER(S)
(PLEASE FILL
IN, IF BLANK,
EXACTLY AS
NAME(S)
APPEAR(S) ON
SHARE SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- ----------------------------------------------------------------
SHARE TOTAL NUMBER OF NUMBER OF
CERTIFICATE SHARES EVIDENCED BY SHARES
NUMBER(S)* SHARE CERTIFICATE(S)* TENDERED**
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
<S> <C> <C> <C>
TOTAL SHARES.....................
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by shareholders delivering Shares by book-entry
transfer.
** Unless otherwise indicated, it will be assumed that all Shares
evidenced by each Share Certificate delivered to the Depositary are
being tendered hereby. See Instruction 4.
<PAGE>
This Letter of Transmittal is to be completed by shareholders either if
certificates evidencing Shares (as defined below) are to be forwarded herewith
or if delivery of Shares is to be made by book-entry transfer to the
Depositary's account at The Depository Trust Company ("DTC") or the
Philadelphia Depository Trust Company ("PDTC") (each a "Book-Entry Transfer
Facility" and collectively, the "Book-Entry Transfer Facilities") pursuant to
the book-entry transfer procedure described under "THE TENDER OFFER--Section
3. Procedures for Accepting the Offer and Tendering Shares" in the Offer to
Purchase (as defined below). DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER
FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Shareholders whose certificates evidencing Shares ("Share Certificates") are
not immediately available or who cannot deliver their Share Certificates and
all other documents required hereby to the Depositary prior to the Expiration
Date (as defined under "THE TENDER OFFER--Section 1. Terms of the Offer;
Expiration Date" in the Offer to Purchase) or who cannot complete the
procedure for delivery by book-entry transfer on a timely basis and who wish
to tender their Shares must do so pursuant to the guaranteed delivery
procedure described under "THE TENDER OFFER--Section 3. Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. See
Instruction 2.
[_]CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Check Box of Applicable Book-Entry Transfer Facility:
(CHECK ONE) [_] DTC [_] PDTC
Account Number ___________________________
Transaction Code Number __________________
[_]CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket No. (if any) _________________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
If delivery is by book-entry transfer, check box of applicable Book-Entry
Transfer Facility:
(CHECK ONE) [_] DTC [_] PDTC
Account Number ___________________________
Transaction Code Number __________________
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Rhone-Poulenc S.A., a societe anonyme
organized under the laws of the Republic of France ("Purchaser"), the above-
described shares (the "Shares") of common stock, without par value per share,
of Rhone-Poulenc Rorer Inc., a Pennsylvania corporation (the "Company"),
pursuant to Purchaser's offer to purchase all issued and outstanding Shares,
at $97 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated August 22, 1997 (the
"Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which, together with the Offer to Purchase, constitute
the "Offer"). The undersigned understands that Purchaser reserves the right to
transfer or assign, in whole or from time to time in part, to one or more of
its affiliates, the right to purchase all or any portion of the issued and
outstanding Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all the Shares that are being tendered
hereby and all dividends, distributions (including, without limitation,
distributions of additional Shares) and rights declared, paid or distributed
in respect of such Shares on or after August 19, 1997 (collectively,
"Distributions") and irrevocably appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Shares and
all Distributions, with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest), to (i)
deliver Share Certificates evidencing such Shares and all Distributions, or
transfer ownership of such Shares and all Distributions on the account books
maintained by a Book-Entry Transfer Facility, together, in either case, with
all accompanying evidences of transfer and authenticity, to or upon the order
of Purchaser, (ii) present such Shares and all Distributions for transfer on
the books of the Company and (iii) receive all benefits and otherwise exercise
all rights of beneficial ownership of such Shares and all Distributions, all
in accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints Igor Landau and Yves Brissy and
each of them, as the attorneys and proxies of the undersigned, each with full
power of substitution, to vote in such manner as each such attorney and proxy
or his substitute shall, in his sole discretion, deem proper and otherwise act
(by written consent or otherwise) with respect to all the Shares tendered
hereby which have been accepted for payment by Purchaser prior to the time of
such vote or other action and all Shares and other securities issued in
Distributions in respect of such Shares, which the undersigned is entitled to
vote at any meeting of shareholders of the Company (whether annual or special
and whether or not an adjourned or postponed meeting) or consent in lieu of
any such meeting or otherwise. This proxy and power of attorney is coupled
with an interest in the Shares tendered hereby, is irrevocable and is granted
in consideration of, and is effective upon, the acceptance for payment of such
Shares by Purchaser in accordance with other terms of the Offer. Such
acceptance for payment shall revoke all other proxies and powers of attorney
granted by the undersigned at any time with respect to such Shares (and all
Shares and other securities issued in Distributions in respect of such
Shares), and no subsequent proxy or power of attorney shall be given or
written consent executed (and if given or executed, shall not be effective) by
the undersigned with respect thereto. The undersigned understands that, in
order for Shares to be deemed validly tendered, immediately upon Purchaser's
acceptance of such Shares for payment, Purchaser must be able to exercise full
voting and other rights with respect to such Shares, including, without
limitation, voting at any meeting of the Company's shareholders then
scheduled.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, that when such Shares are accepted for payment
by Purchaser, Purchaser will acquire good, marketable and unencumbered title
thereto and to all Distributions, free and clear of all liens, restriction,
charges and encumbrances, and that none of such Shares and Distributions will
be subject to any adverse claim. The undersigned, upon request, shall execute
and deliver all additional documents deemed by the assignment and transfer of
the Shares tendered hereby and all Distributions.
3
<PAGE>
In addition, the undersigned shall remit and transfer promptly to the
Depositary for the account of Purchaser all Distributions in respect of the
Shares tendered hereby, accompanied by appropriate documentation of transfer,
and pending such remittance and transfer or appropriate assurance thereof,
Purchaser shall be entitled to all rights and privileges as owner of each such
Distribution and may withhold the entire purchase price of the Shares tendered
hereby, or deduct from such purchase price, the amount or value of such
Distribution as determined by Purchaser in its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Offer to Purchase under "THE TENDER OFFER--Section
3. Procedures for Accepting the Offer and Tendering Shares" and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer. Purchaser's acceptance of such Shares for payment
will constitute a binding agreement between the undersigned and Purchaser upon
the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions", please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased
or not tendered in the name(s) of the registered holder(s) appearing above
under "Description of Shares Tendered". Similarly, unless otherwise indicated
in the box entitled "Special Delivery Instructions", please mail the check for
the purchase price of all Shares purchased and all Share Certificates
evidencing Shares not tendered or not purchased (and accompanying documents,
as appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered". In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of all Shares
purchased and return all Share Certificates evidencing Shares not purchased or
not tendered in the name(s) of, and mail such check and Share Certificates to,
the person(s) so indicated. Unless otherwise indicated herein in the box
entitled "Special Payment Instructions", please credit any Shares tendered
hereby and delivered by book-entry transfer, but which are not purchased by
crediting the account at the Book-Entry Transfer Facility designated above.
The undersigned recognizes that Purchaser has no obligation, pursuant to the
Special Payment Instructions, to transfer any Shares from the name of the
registered holder(s) thereof if Purchaser does not purchase any of the Shares
tendered hereby.
4
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS
INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check To be completed ONLY if the check
for the purchase price of Shares for the purchase price of Shares
or Share Certificates evidencing purchased or Share Certificates
Shares not tendered or not pur- evidencing Shares not tendered or
chased to be issued in the name not purchased are to be mailed to
of someone other than the under- someone other than the under-
signed, or if Shares tendered signed, or the undersigned at an
hereby and delivered by book-en- address other than that shown un-
try transfer which are not pur- der "Description of Shares Ten-
chased are to be returned by dered".
credit to an account at one of
the Book-Entry Transfer Facili-
ties other than that designated
above.
Mail [_] check [_] Share Cer-
tificate(s) to:
Name______________________________
PLEASE PRINT
Issue [_] check [_] Share Address __________________________
Certificate(s) to: __________________________________
(ZIP CODE)
Name _____________________________ __________________________________
PLEASE PRINT TAXPAYER IDENTIFICATION OR SOCIAL
Address __________________________ SECURITY NUMBER (SEE SUBSTITUTE
__________________________________ FORM W-9 ON REVERSE SIDE)
(ZIP CODE)
__________________________________
TAXPAYER IDENTIFICATION OR SOCIAL
SECURITY NUMBER (SEE SUBSTITUTE
FORM W-9 ON REVERSE SIDE)
[_]Credit Shares delivered by
book-entry transfer and not
purchased to the account set
forth below:
Check appropriate box:
[_] DTC [_] PDTC
Account Number: __________________
5
<PAGE>
IMPORTANT
SHAREHOLDERS: SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
------------------------------------------------------
------------------------------------------------------
SIGNATURE(S) OF HOLDER(S)
Dated: _____________ , 1997
(Must be signed by registered holder(s) exactly as
name(s) appear(s) on Share Certificates or on a
security position listing by a person(s) authorized
to become registered holder(s) by certificates and
documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, attorney-
in-fact, officer of a corporation or other person
acting in a fiduciary or representative capacity,
please provide the following information and see
Instruction 5).
Name(s): _____________________________________________
------------------------------------------------------
PLEASE PRINT
Capacity (full title) ________________________________
Address: _____________________________________________
------------------------------------------------------
(ZIP CODE)
Area Code and Telephone No: __________________________
Taxpayer Identification or Social Security No.: ______
(SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. FINANCIAL
INSTITUTIONS: PLACE MEDALLION GUARANTEE IN SPACE
BELOW.
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a member of the Medallion Signature
Guarantee Program, or by any other "eligible guarantor institution", as such
term is defined in Rule 17Ad-5 promulgated under the Securities Exchange Act
of 1934, as amended (each of the foregoing being referred to as an "Eligible
Institution"), unless (i) this Letter of Transmittal is signed by the
registered holder(s) of the Shares (which term, for purposes of this document,
shall include any participant in a Book-Entry Transfer Facility whose name
appears on a security position listing as the owner of Shares) tendered hereby
and such holder(s) has (have) completed neither the box entitled "Special
Payment Instructions" nor the box entitled "Special Delivery Instructions" on
the reverse hereof or (ii) such Shares are tendered for the account of an
Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Share Certificates. This Letter of
Transmittal is to be used either if Share Certificates are to be forwarded
herewith or if Shares are to be delivered by book-entry transfer pursuant to
the procedure set forth under "THE TENDER OFFER--Section 3. Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. Share
Certificates evidencing all physically tendered Shares, or a confirmation of a
book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility of all Shares delivered by book-entry transfer as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and
any other documents required by this Letter of Transmittal, must be received
by the Depositary at one of its addresses set forth on the reverse hereof
prior to the Expiration Date (as defined in Section 1 under "THE TENDER
OFFER--Section 1. Terms of the Offer; Expiration Date" in the Offer to
Purchase). If Share Certificates are forwarded to the Depositary in multiple
deliveries, a properly completed and duly executed Letter of Transmittal must
accompany each such delivery. Shareholders whose Share Certificates are not
immediately available, who cannot deliver their Share Certificates and all
other required documents to the Depositary prior to the Expiration Date or who
cannot complete the procedure for delivery by book-entry transfer on a timely
basis may tender their Shares pursuant to the guaranteed delivery procedure
described in under "THE TENDER OFFER--Section 3. Procedures for Accepting the
Offer and Tendering Shares" in the Offer to Purchase. Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by Purchaser, must be received by the
Depositary prior to the Expiration Date; and (iii) the Share Certificates
evidencing all physically delivered Shares in proper form for transfer by
delivery, or a confirmation of a book-entry transfer into the Depositary's
account at a Book-Entry Transfer Facility of all Shares delivered by book-
entry transfer, in each case together with a Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the Depositary within three New York Stock
Exchange, Inc. ("NYSE") trading days after the date of execution of such
Notice of Guaranteed Delivery, all as described under "THE TENDER OFFER--
Section 3. Procedures for Accepting the Offer and Tendering Shares" in the
Offer to Purchase.
The method of delivery of this Letter of Transmittal, Share Certificates and
all other required documents, including delivery through any Book-Entry
Transfer Facility, is at the option and risk of the tendering shareholder, and
the delivery will be deemed made only when actually received by the
Depositary. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, sufficient time
should be allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of
Transmittal (or a facsimile hereof), all tendering shareholders waive any
right to receive any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
7
<PAGE>
4. Partial Tenders (not applicable to shareholders who tender by book-entry
transfer). If fewer than all the Shares evidenced by any Share Certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares which are to be tendered in the box entitled "Number of
Shares Tendered". In such cases, new Share Certificate(s) evidencing the
remainder of the Shares that were evidenced by the Share Certificates
delivered to the Depositary herewith will be sent to the person(s) signing
this Letter of Transmittal, unless otherwise provided in the box entitled
"Special Delivery Instructions" on the reverse hereof, as soon as practicable
after the expiration or termination of the Offer. All Shares evidenced by
Share Certificates delivered to the Depositary will be deemed to have been
tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written
on the face of the Share Certificates evidencing such Shares without
alteration, enlargement or any other change whatsoever.
If any Share tendered hereby is owned of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate
stock powers are required, unless payment is to be made to, or Share
Certificates evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), in which case,
the Share Certificate(s) evidencing the Shares tendered hereby must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on such Share
Certificate(s). Signatures on such Share Certificate(s) and stock powers must
be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on
such Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of such person's authority so to act
must be submitted.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6,
Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or
Share Certificate(s) evidencing Shares not tendered or not purchased are to be
issued in the name of, a person other than the registered holder(s), the
amount of any stock transfer taxes (whether imposed on the registered
holder(s), such other person or otherwise) payable on account of the transfer
to such other person will be deducted from the purchase price of such Shares
purchased, unless evidence satisfactory to Purchaser of the payment of such
taxes, or exemption therefrom, is submitted. Except as provided in this
Instruction 6, it will not be necessary for transfer tax stamps to be affixed
to the Share Certificates evidencing the Shares tendered hereby.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name
of a person other than the person(s) signing this Letter of Transmittal or if
such check or any such
8
<PAGE>
Share Certificate is to be sent to someone other than the person(s) signing
this Letter of Transmittal or to the person(s) signing this Letter of
Transmittal but at an address other than that shown in the box entitled
"Description of Shares Tendered" on the reverse hereof, the appropriate boxes
on the reverse of this Letter of Transmittal must be completed. Shareholders
delivering Shares tendered hereby by book-entry transfer may request that
Shares not purchased be credited to such account maintained at a Book-Entry
Transfer Facility as such shareholder may designate in the box entitled
"Special Payment Instructions" on the reverse hereof. If no such instructions
are given, all such Shares not purchased will be returned by crediting the
account at the Book-Entry Transfer Facility designated on the reverse hereof
as the account from which such Shares were delivered.
8. Questions and Requests for Assistance or Additional Copies. Questions and
requests for assistance may be directed to the Information Agent or the Co-
Dealer Managers at their respective addresses or telephone numbers set forth
below. Additional copies of the Offer to Purchase, this Letter of Transmittal
and the Notice of Guaranteed Delivery may be obtained from the Information
Agent or from brokers, dealers, commercial banks or trust companies.
9. Substitute Form W-9. Each tendering shareholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify, under penalty of perjury, that such number is correct and that
such shareholder is not subject to backup withholding of federal income tax.
If a tendering shareholder has been notified by the Internal Revenue Service
that such shareholder is subject to backup withholding, such shareholder must
cross out item (2) of the Certification box of the Substitute Form W-9, unless
such shareholder has since been notified by the Internal Revenue Service that
such shareholder is no longer subject to backup withholding. Failure to
provide the information on the Substitute Form W-9 may subject the tendering
shareholder to a 31% federal income tax withholding on the payment of the
purchase price of all Shares purchased from such shareholder. If the tendering
shareholder has not been issued a TIN and has applied for one or intends to
apply for one in the near future, such shareholder should write "Applied For"
in the space provided for the TIN in Part I of the Substitute Form W-9, and
sign and date the Substitute Form W-9. If "Applied For" is written in Part I
and the Depositary is not provided with a TIN within 60 days, the Depositary
will withhold 31% on all payments of the purchase price to such shareholder
until a TIN is provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF) PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES
AND SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION
DATE (AS DEFINED IN THE OFFER TO PURCHASE).
9
<PAGE>
IMPORTANT TAX INFORMATION
Under the federal income tax law, a shareholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such shareholder's correct TIN on Substitute Form W-9 below. If such
shareholder is an individual, the TIN is such shareholder's social security
number. If the Depositary is not provided with the correct TIN, the
shareholder may be subject to a $50 penalty imposed by the Internal Revenue
Service, and payments that are made to such shareholder with respect to Shares
purchased pursuant to the Offer may be subject to backup withholding of 31%.
If a shareholder makes a false statement that results in no imposition of
backup withholding, and there is no reasonable basis for such statement, a
$500 penalty may also be imposed by the Internal Revenue Service.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a statement, signed under penalties of
perjury, attesting to such individual's exempt status. Forms of such
statements can be obtained from the Depositary. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions. A shareholder should consult his or her advisor as to
such shareholder's qualification for exemption from backup withholding and the
procedure for obtaining such exemption.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the shareholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a shareholder
with respect to Shares purchased pursuant to the Offer, the shareholder is
required to notify the Depositary of such shareholder's correct TIN by
completing the form below certifying that the TIN provided on Substitute Form
W-9 is correct (or that such shareholder is awaiting a TIN), and that (i) such
shareholder has not been notified by the Internal Revenue Service that he is
subject to backup withholding as a result of a failure to report all interest
or dividends or (ii) the Internal Revenue Service has notified such
shareholder that such shareholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are held in more than one name or are not in
the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report. If the tendering shareholder
has not been issued a TIN and has applied for a number or intends to apply for
a number in the near future, the shareholder should write "Applied For" in the
space provided for the TIN in Part I, and sign and date the Substitute Form W-
9. If "Applied For" is written in Part I and the Depositary is not provided
with a TIN within 60 days, the Depositary will withhold 31% of all payments of
the purchase price to such shareholder until a TIN is provided to the
Depositary.
10
<PAGE>
PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
SUBSTITUTE PART I--Taxpayer Identification
FORM W-9 Number--For all accounts, enter ---------------------
taxpayer identification number Social Security
in the box at right (For most Number
individuals, this is your so-
cial security number. If you do
not have a number, see Ob-
taining a Number in the en-
closed Guidelines.) Certify by
signing and dating below. Note:
If the account is in more than
one name, see the chart in the
enclosed Guidelines to deter-
mine which number to give the
payer.
OR __________________
Taypayer
Identification
Number
(If awaiting TIN
write "Applied For")
---------------------------------------------------------
Payer's request PART II--For Payees Exempt From Backup Withholding,
for Taxpayer see the enclosed Guidelines and complete as
Identification instructed therein.
Number (TIN)
- -------------------------------------------------------------------------------
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject
to backup withholding as a result of failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
receive another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
- -------------------------------------------------------------------------------
SIGNATURE: _______________________________________ DATE _________ , 1997
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
11
<PAGE>
FACSIMILES OF THE LETTER OF TRANSMITTAL, PROPERLY COMPLETED AND DULY SIGNED,
WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL AND CERTIFICATES EVIDENCING SHARES
AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH
SHAREHOLDER OR SUCH SHAREHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST
COMPANY OR OTHER NOMINEE TO THE DEPOSITARY AT ONE OF ITS ADDRESSES SET FORTH
BELOW.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY MAIL: BY FACSIMILE BY HAND: BY OVERNIGHT
TRANSMISSION: COURIER:
CHASEMELLON CHASEMELLON
SHAREHOLDER (FOR ELIGIBLE SHAREHOLDER CHASEMELLON
SERVICES, L.L.C. INSTITUTIONS ONLY) SERVICES, L.L.C. SHAREHOLDER
P.O. BOX 3305 (201) 329-8936 120 BROADWAY, SERVICES L.L.C.
SOUTH HACKENSACK, 13TH FLOOR 85 CHALLENGER ROAD
NJ 07606 NEW YORK, NY 10271 MAIL DROP REORG.
ATTN: CONFIRM BY ATTN: DEPT.
REORGANIZATION TELEPHONE: REORGANIZATION RIDGEFIELD PARK,
DEPT. (201) 296-4860 DEPT. NJ 07660
ATTN:
REORGANIZATION
DEPT.
----------------
QUESTIONS OR REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO THE INFORMATION
AGENT OR THE CO-DEALER MANAGERS AT THEIR RESPECTIVE ADDRESSES AND TELEPHONE
NUMBERS LISTED BELOW. ADDITIONAL COPIES OF THE OFFER TO PURCHASE, THE LETTER
OF TRANSMITTAL AND THE NOTICE OF GUARANTEED DELIVERY MAY BE OBTAINED FROM THE
INFORMATION AGENT. A SHAREHOLDER MAY ALSO CONTACT BROKERS, DEALERS, COMMERCIAL
BANKS OR TRUST COMPANIES FOR ASSISTANCE CONCERNING THE OFFER.
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO OF GEORGESON
& COMPANY INC.]
UNITED STATES: EUROPE:
Wall Street Plaza Moor House--17th Floor 119 London
New York, New York 10005 Wall London EC2Y 5ET England +44-
Banks and Brokers Call Collect: 171-454-7100
(212) 440-9800
ALLOTHERS CALL TOLL FREE: (800) 223-2064
THE DEALER MANAGERS FOR THE OFFER ARE:
MORGAN STANLEY DEAN WITTER UBS SECURITIES
MORGAN STANLEY & CO. INCORPORATED UBS SECURITIES LLC
1585 BROADWAY 299 PARK AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NY 10171
(212) 761-7139 CALL TOLL FREE: 1-888-821-5176
August 22, 1997
<PAGE>
Exhibit (a)(3)
[Letterhead of Rhone-Poulenc Rorer Inc.]
August 22, 1997
Dear Shareholder:
On behalf of the Board of Directors of Rhone-Poulenc Rorer Inc. (the
"Company" or "RPR"), I am pleased to inform you that RPR entered into an
Agreement and Plan of Merger, dated as of August 19, 1997 (the "Merger
Agreement"), with Rhone-Poulenc S.A. ("Purchaser") and RP Vehicle, Inc. (the
"Merger Subsidiary"), pursuant to which Purchaser has commenced a cash tender
offer (the "Offer") to purchase all of the outstanding common shares, without
par value, of RPR (the "Shares") at $97 per Share, net to the seller in cash.
Following the successful completion of the Offer, upon the terms and subject
to the conditions contained in the Merger Agreement, the Merger Subsidiary will
be merged with and into the Company (the "Merger"), with the Company as the
surviving corporation. At the effective time of the Merger, each remaining
issued and outstanding Share (other than those held by Purchaser or any direct
or indirect subsidiary of Purchaser) shall, subject to dissenters rights if
any, be converted into the right to receive $97 in cash.
The Board of Directors of the Company, by unanimous vote of all directors
present and voting based upon, among other things, the unanimous recommendation
and approval of a special committee of the Board consisting of the directors of
the Company who are unaffiliated with Purchaser or the Company's management
(the "Special Committee"), has determined that the Merger Agreement and the
transactions contemplated thereby including the Offer and the Merger are fair
to, and in the best interests of, the Company. The Board has also unanimously
approved the Offer, the Merger and the Merger Agreement and recommends that
shareholders accept the Offer and tender their Shares to the Purchaser pursuant
to the Offer.
In arriving at their decisions, the Special Committee and the Board of
Directors gave careful consideration to a number of factors described in the
enclosed Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") which is being filed today with the Securities and Exchange Commission.
Among other things, the Special Committee considered the opinion of Goldman,
Sachs & Co., financial advisor to the Special Committee, that the $97 per Share
in cash to be received by the shareholders of the Company, other than Purchaser
and its subsidiaries, pursuant to the Offer and the Merger is fair to such
holders. The enclosed Schedule 14D-9 describes the Special Committee's and the
Board's decisions and contains other important information relating to such
decisions.
Also accompanying this letter is the Purchaser's Offer to Purchase, dated
August 22, 1997, which includes the written opinion of Goldman Sachs, dated
August 19, 1997, together with a letter of transmittal to be used for tendering
your Shares. These documents set forth the terms and conditions of the Offer
and provide instructions as to how to tender your Shares. We urge you to read
the enclosed materials carefully and consider all factors set forth therein
before making your decision with respect to the Offer.
On behalf of the Board of Directors, management and employees of RPR, I thank
you for the support you have given RPR.
Very truly yours,
Michel de Rosen
Chairman and Chief Executive Officer
<PAGE>
Exhibit (a)(11)
RHONE-POULENC TO ACQUIRE ALL OUTSTANDING SHARES
OF RHONE-POULENC RORER AT $97 PER SHARE
WITH APPROVAL OF RPR SPECIAL COMMITTEE
Collegeville, Pa. and Paris, France - August 20, 1997 -- The Special Committee
of Rhone-Poulenc Rorer (NYSE: RPR), composed of its three independent Directors,
unanimously supported the cash tender offer proposed yesterday by Rhone-Poulenc
to acquire the remaining shares of RPR it does not currently own at a price of
$97 per share. The Special Committee recommended this offer to the RPR Board,
which approved the proposed transaction in a special meeting on August 19, 1997.
The terms and conditions of the tender offer will be made public in the United
States through a filing with the Securities and Exchange Commission (SEC), in
France by a notice issued by the Societe de Bourses Francaises (SBF), and in
both countries through publicity in the press.
James S. Riepe, Chairman of the RPR Special Committee, said: "We are pleased
with the results of our negotiation with Rhone-Poulenc and believe that this
transaction will serve the best interests of the minority shareholders. We look
forward to the successful completion of this transaction."
<PAGE>
Exhibit (c)(2)
--------------
Directors Compensation. Directors who are not employees of the Company or any
of its subsidiaries were paid in 1996 an annual retainer of $25,000. An
additional annual retainer of $2,000 was paid for committee participation and an
additional $2,000 for committee chairmanship. Directors also received a fee of
$1,000 per Board meeting attended and $500 per committee meeting. The
directors, in addition, receive a fee of $500, or a total of $1,000, for
attending a committee meeting not held in conjunction with a meeting of the
Board.
The terms of the Company's stock option plans, which have been approved by
the shareholders, provide that each non-employee director receives upon election
to the Board a non-qualified option to purchase 20,000 Shares at an option price
equal to the then-current market value, with such option to become exercisable,
on a cumulative basis, as to 20% of the Shares on each of the first five
anniversary dates of the grant.
Directors who are employees of the Company or any of its subsidiaries do
not receive compensation for service as directors.
Report on Executive Compensation By the Executive Personnel and Compensation
Committee. The Executive Personnel and Compensation Committee of the Board of
Directors makes compensation decisions with respect to the Company's executive
officers. Each member of the Committee is a non-employee director. All
decisions of the Committee relating to the compensation of the Company's
executive officers, including the executive officers named in the Summary
8
<PAGE>
Compensation Table on page 13 (the "Named Executive Officers"), are reviewed by
the full Board, except for decisions about awards under the Company's stock
plans, which are made by the Committee. The Committee here reports to the
Company's shareholders about the Company's policies as they are reflected in the
compensation paid for 1996 to the executive officers of the Company (including
the Named Executive Officers) and the factors and criteria used by the Board of
Directors in determining the Chief Executive Officer's compensation for 1996.
Executive Compensation. The Company's executive compensation policies are
designed to provide levels of compensation that are competitive within its
industry and to pay executives for performance consistent with the Company's
annual and long-term goals. By relating a meaningful part of executive
compensation to the results achieved, compensation is linked to the interests of
all shareholders. Compensation targets and payments are tied to the achievement
of objectives in Company earnings per share, business unit or function
performance and individual performance.
There are three elements of the executive compensation package: (1) base
salary which is generally targeted to approach the average salary of the
pharmaceutical industry for a comparable executives position; (2) an annual
variable incentive cash bonus, tied to the results of a business unit or
function and an individual's performance; and (3) longer term incentive
compensation, consisting of the Capital Plan and options to purchase Company
shares, the amount of which is based on individual performance. Individual
performance is judged against the attainment of individual objectives which
include financial results for business units (where appropriate) and other
factors, qualitative in nature, such as contributions to other business units,
staffing, financial management and controls, business strategies, etc. As a
result of this structure, company executives have a greater percentage of total
compensation tied to results achieved than most other executives in the
pharmaceutical industry and, by design, this may result in higher compensation
when Company performance warrants, but also carries the potential of reduced or
no variable compensation when Company performance is below targeted levels.
Because the Committee believes that stock ownership by management is beneficial
to the Company in that it, too, links executives' and shareholders' interests,
the Committee utilizes stock-based performance compensation.
Salary. The Committee annually reviews base salaries of executive officers and
recommends increases to the Board of Directors on the basis of the Company's and
the individual's performance in the previous year, responsibilities of the
position, the level and movement of salaries for comparable positions in the
pharmaceutical industry, and changes in the cost of living.
For market data, the Company surveys peer companies in the pharmaceutical
industry which the Committee believes are appropriate for comparison of salary
levels for its executives. These surveyed companies comprise the peer group
index, which is used for the performance graph on page 12.
Incentive Bonus. The Company pays variable incentive compensation to executives
in the form of an annual cash bonus which is based on the attainment of
predetermined objectives for: (1) Company earnings per share; (2) income before
income tax or, if it is not a profit center, another appropriate measure of the
executive's business unit or function; and (3) the individual's performance,
measured against predetermined objectives for the year. Generally, 40% of a
target award is attributed to attainment of individual objectives and 60% to
financial or functional goals. Company financial objectives and the individual
target bonus awards (calculated and expressed as a percentage of salary) are
reviewed and approved by the Committee at the beginning of each fiscal year. The
variable incentive is
9
<PAGE>
designed to be a short-term award for specific results and performance in a
given year and to generate total short-term compensation that is competitive
within the pharmaceutical industry. The performance against objectives of
executive officers is reviewed by the Committee, which recommends bonus awards
to the Board of Directors for approval. Achievement of an acceptable level of
Company earnings per share, against the objectives set annually by the Board of
Directors, must be attained before a significant portion of the bonus can be
paid.
As reported in the Company's financial statements, 1996 BPS was adversely
affected by the Centeon recall and suspension of manufacture and while in most
cases business unit and individual performance met or exceeded expecta tions,
bonuses,for 1996 paid to the Named Executive Officers were materially below
target as a consequence of the EPS performance.
Long-Term Incentive. The primary long-term incentives provided to executives
are options for the purchase of Company common stock. As with incentive bonus
payments, annual stock option grants made by the Committee are variable, based
upon achievement of predetermined goals for the previous year. The number of
shares in target option awards for executive officers are based on a stock
option multiple which is expressed as a percentage of salary. Stock options
play an important role in the Company's executive compensation structure,
thereby making compensation more dependent on the long-term performance of the
Company.
In granting its stock option awards, the Committee does not consider either
how many stock options have been granted in prior years or how many remain
unexercised, but rather determines each year's grants on the basis of the
previous year's individual performance and the total number of options available
for grant.
Options have a term not to exceed ten years and, in the case of annual
grants, the option as to one-third of the grant becomes exercisable on each of
the first three anniversaries of the grant. Generally, the option price is the
market value of the shares on the date of grant of the option. However, a
premium-priced option was granted in 1993 to certain executives, including
several of the Named Executive Officers. Such options became exercisable in 1996
at an exercise price which required at least a 10% annual increase in stock
price in order to be exercised. This assured that there was no benefit to the
executive unless all shareholders recognized a meaningful increase in the value
of their shares.
In 1996, grants to executive officers generally reflected the achievement
of individual objectives. Special grants were made to Mr. Rothwell and Mr.
Langlois to recognize the performance of specific business objectives in 1996.
The Company also has a Capital Plan which provides an additional
performance incentive to a small group of senior executives of the Company who
have made and are expected to continue to make contributions that are
instrumental to the management, growth and success of the Company. The Committee
believes the Capital Plan helps the Company to remain competitive with its peer
companies and addresses a need for a short- to medium-term performance-based
incentive in the Company's executive compensation. The Capital Plan provides an
annual performance unit award payable in cash, a portion of which is deferred
for several years. The number of units awarded will vary depending upon Company
net income performance compared with that of peer companies and the unit is
valued by a comparison of Company net income year on year. The Committee
believes that the Capital Plan is a valuable tool in providing an incentive
which is consistent with the interests of shareholders while helping to assure
that the Company's executive compensation remains competitive within the
industry.
10
<PAGE>
The Chief Executive Officer's Compensation. The Chief Executive Officer's
compensation for 1996 included the same components of salary and variable
compensation in the form of cash bonus, Capital Plan pay-out, and stock options
as apply to other executives of the Company. The methodology employed by the
Committee in setting objective and target performance goals for the Chief
Executive Officer also was basically the same as for other executives. The
Committee, in setting the Chief Executive Officer's compensation, considered, in
addition to market data, such factors as the Company's financial results,
development and implementation of Company strategy, management staffing,
divestitures, corporate integration of Fisons, internal and external
communications, research & development results, and cost management efforts.
The Committee viewed the Chief Executive Officer's performance in 1996 as
satisfactory, recognizing that substantial progress in most business areas was
offset by the financial impact of the Centeon situation.
Change of Control Arrangements.
In 1996, the Board of Directors, upon the recommendation of the Committee,
approved change of control arrangements with a number of executives of the
Company, including the Named Executive Officers. The terms of those contracts
are described on page 18. The Committee notes that these agreements are
customary in the pharmaceutical industry and believes that during a period of
consolidation and transition, such as the industry has been experiencing, they
are necessary and appropriate for the retention and recruitment of top-level
executives. Further, the agreements require both a change in control and a
negative change in job responsibilities before the executive receives any
benefit.
FEDERAL TAX LEGISLATION
Federal tax legislation, enacted in 1993, limits the deductibility of
compensation in excess of $1 million for named executive officers appearing in
the Summary Compensation Table. However, compensation in excess of $1 million
can generally be deducted if it results from compensation plans which have
been approved by the shareholders and which have only quantitative measures of
performance. The Committee believes that the Company's exposure is not
material in 1996 or in any foreseeable year and that it will continue to
follow the situation and take such measures as it deems appropriate if the
loss of deductibility requires further action.
COMPENSATION COMMITTEE INTERLOCKS
Michael H. Jordan, who has been Chairman and CEO of Westinghouse Electric
Corporation since 1993, was a director of the Company until his resignation,
effective March 1, 1997. He was a member of the Executive Compensation and
Personnel Committee in 1997, 1996 and in prior years. Robert E. Cawthorn,
Chairman Emeritus of the Company, became a director of Westinghouse in 1995
and was, until his retirement as an employee of the Company in April 1996, an
executive officer of the Company.
James S. Riepe, Chairman Igor Landau
11
<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
shareholder return on the Company's Shares for the five-year period December
31, 1991 to December 31, 1996 with the cumulative total return of the Standard
& Poor's 500 Stock Index (which does not include the Company) and a peer group
consisting of the companies in the pharmaceutical industry used for
compensation comparison which have securities traded in the United States.
Dividend reinvestment has been assumed and, with respect to companies in the
peer group, the returns of each such company have been weighted to reflect
relative stock market capitalization as of the beginning of each measurement
period.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S&P 500 PEER GROUP RPR
<S> <C> <C> <C>
1991 100 100 100
1992 108 83 73
1993 118 77 58
1994 120 87 60
1995 165 137 91
1996 203 172 135
</TABLE>
- --------
The peer group consists of Abbott Laboratories, American Home Products
Corporation, Bristol-Myers Squibb Company, Eli Lilly & Company, Glaxo Wellcome
plc, Johnson & Johnson, Merck & Co., Inc., Pfizer Inc., Pharmacia & Upjohn,
Inc., Schering-Plough Corporation, SmithKline Beecham plc, and Warner-Lambert
Company. The Company uses the peer group for comparisons of executive
compensation. In 1996, the peer group was amended to include Pharmacia &
Upjohn, Inc. which did not have a material impact on the peer group cumulative
total return figures.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation
during the last three fiscal years of the Company's Chief Executive Officer
and its next four most highly compensated executive officers serving at the
end of 1996 (collectively referred to hereafter as the "Named Executive
Officers") for all services rendered by them to the Company.
- -------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ----------------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
SECURITIES
UNDERLYING
OTHER ANNUAL RESTRICTED OPTIONS/ LTP ALL OTHER
NAME AND COMPENSATION STOCK SARS/3/ PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)/1/ ($)/2/ AWARD(S)($) (#) ($) ($)/4/
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michel de Rosen 1996 572,000 298,081 141,748 -0- 30,000 -0- -0-
Chairman and 1995 435,600 275,734 119,600 -0- 19,102 -0- -0-
Chief Executive 1994 433,833 252,865 118,767 -0- 34,080 -0- -0-
Officer
Timothy G. Rothwell* 1996 440,000 224,008 -0- -0- 26,358 -0- 3,000
President and 1995 383,609 252,217 435,916 -0- 12,000 -0- 3,000
President,
Pharmaceutical
Operations
M.E. Karobath M.D. 1996 401,080 209,721 81,920 -0- 14,133 -0- 3,000
Executive Vice 1995 396,958 227,800 -0- -0- 24,079 -0- 3,000
President, and 1994 336,397 211,724 -0- -0- 28,011 -0- 3,000
President, RPR Research
and Development
Patrick Langlois 1996 317,581 100,856 166,578 -0- 21,320 -0- 5,412
Executive Vice 1995 300,000 118,250 137,707 -0- 14,969 -0- 5,412
President and Chief 1994 281,350 101,375 108,284 -0- 16,689 -0- 5,412
Financial Officer
Richard Forrest 1996 271,450 122,718 100,552 -0- 8,675 -0- -0-
Senior Vice 1995 244,983 144,048 95,303 -0- 9,833 -0- -0-
President and 1994 191,669 60,536 66,864 -0- 10,965 -0- -0-
General Manager/Europe
</TABLE>
- --------
/1/ The amount shown in this column represents the annual incentive bonus for
the performance year indicated and paid in the following year, as more fully
described in the report of the Compensation Committee on page 9. The amounts
shown for Mr. Langlois are net of a $40,000 payment made in each year by RP
for services performed for it as described on page 19.
/2/ If no amount is shown, the aggregate of perquisites and other personal
benefits does not exceed the lesser of $50,000 or 10% of the combined salary
and bonus of the Named Executive Officer and therefore is not required to be
reported.
The amount shown in this column for 1996 represents (a) the short-term
payout, made in 1996, of the 1995 grant under the terms of the Capital Plan
to each of the Named Executive Officers as follows: Mr. de Rosen; $81,920;
Dr. Karobath, $81,920; Mr. Langlois, $61,440; and Mr. Forrest,
13
<PAGE>
$25,600; and, (b) personal benefits paid to the Named Executive Officers,
some under the terms of the Company's expatriate program, the individual
benefits exceeding 25% of the total for each being: for Mr. de Rosen,
housing allowance of $45,600; for Mr. Langlois, housing allowance of
$70,968, and assignment allowance of $31,770; and for Mr. Forrest, housing
allowance of $56,565. The amounts shown in this column for 1995 represent
(a) for Mr. de Rosen, personal benefits in connection with the Company's
expatriate program, of which individual benefits exceeding 25% of the total
were a housing allowance of $76,000 and home leave of $23,600; (b) for Mr.
Rothwell, the tax grossed-up aggregate of a sign-on bonus of $140,000 and an
advance of $160,000 which would be repaid to the Company on a pro rata basis
in the event Mr. Rothwell's employment terminates prior to January 30, 1999;
(c) for Mr. Langlois, personal benefits in connection with the Company's
expatriate program, of which the individual benefit exceeding 25% of the
total was an assignment allowance of $74,257; and (d) for Mr. Forrest,
personal benefits in connection with the Company's expatriate program, of
which the individual benefit exceeding 25% of the total was a housing
allowance of $62,926. The amounts shown in this column for 1994 represent
payment made to or on behalf of the Named Executive Officers in connection
with the Company's expatriate program; the individual benefits which
exceeded 25% of the total personal benefits for the Named Executive officer
were (a) for Mr. de Rosen, housing allowance ($31,667), relocation allowance
($40,000) and home leave ($35,299); (b) for Mr. Langlois, housing allowance
($34,483) and assignment allowance ($50,082); and (c) for Mr. Forrest,
housing allowance ($64,795).
/3/ Stock options are granted with option price equal to current market value
and become exercisable as to one-third of the grant on each of the first
three anniversaries of the date of grant, except for special grants of
10,000 shares each to Mr. Rothwell and Mr. Langlois in 1996 which became
exercisable as to half immediately upon grant and as to half on December 31,
1996 upon the attainment of certain business objectives for 1996. See table
entitled Stock Option Grants in 1996 on page 16.
/4/ Represents (a) employer matching contributions to the Rhone-Poulenc Rorer
Employee Savings Plan (401(k)) of $3,000 each for Mr. Rothwell and Dr.
Karobath and (2) premium cost of whole life insurance policy for the benefit
of Mr. Langlois.
* Mr. Rothwell was initially employed by the Company on January 25, 1995.
14
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS IN 1996
The following table shows the long-term award, made in 1996 and payable
three years after grant, under the terms of the Company's Capital Plan. The
Capital Plan provides for annual performance unit awards, one-half of which is
typically a long-term benefit payable in cash three years after grant
(reported in the following table) and one-half of which is payable in cash one
year after grant (reported in the appropriate year's Summary Compensation
Table). The annual performance unit awards were first made in 1995 at a value
of $20 per unit. The value of the performance unit will vary, depending upon
the Company's increase or decrease in its net income compared to the previous
year's net income and can change from 50% to 150% from the previous year's
baseline. The number of performance units awarded in 1996 were, and those
awarded in subsequent years will be, determined each year with reference to
the Company's net income change from the previous year, compared to the
average change in net income of peer companies represented in the performance
graph on page 12. The number of performance units awarded may range from 50%
to 150% of a target for each Named Executive Officer. One-half of the award
made in 1996 to each Named Executive Officer, except Mr. Langlois, will be
paid out in 1997 and one-half will be paid in 1999; Mr. Langlois will receive
a payout of his entire 1996 award in 1997.
In order to continue to participate in the Capital Plan, the Named Executive
Officers must, within two to four years after being selected to participate,
own that number of the Shares equal in market value to at least one year's
base salary in effect when the Named Executive Officer began to participate;
thereafter, the participant must own, on January 1st of any year, that number
of Shares equal in market value to at least the participant's then-current
base salary.
- -------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLAN AWARDS TABLE
<TABLE>
- ----------------------------------------------------------------------------------
<CAPTION>
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR/1/
- ----------------------------------------------------------------------------------
(A) (B) (C)
NUMBER OF SHARES, UNITS, PERFORMANCE OR OTHER PERIOD
NAME OR OTHER RIGHTS (#) UNTIL MATURATION OR PAYOUT
- ----------------------------------------------------------------------------------
<S> <C> <C>
M. de Rosen 2,860 3 years
T.G. Rothwell 2,860 3 years
M.E. Karobath 2,860 3 years
R. Forrest 1,430 3 years
</TABLE>
- --------
/1/ Represents long-term award, payable three years after grant, under the terms
of the Capital Plan. The Capital Plan provides for annual performance unit
awards, one-half of which is a short-term benefit payable in cash to the
Named Executive Officer one year after grant (reported in the Summary
Compensation Table for the year of payment), and one-half of which is
typically a long-term benefit payable in cash three years after grant. The
annual performance unit awards were first made in 1995 at a value of $20 per
unit and in 1996 at $20.48 per unit. The value of the performance unit will
depend upon the Company's increase or decrease in net income compared to the
previous year's net income and can change from 50% to 150% from the previous
year's baseline. The number of performance units awarded in 1996 and in
subsequent years will be determined each year with reference to the
Company's net income change from the previous year, compared to the average
change in net income of peer companies. The size of the performance award
may range from 50% to 150% of a target for each participant.
15
<PAGE>
STOCK OPTION GRANTS IN 1996
The following table shows all options to purchase the Company Common Shares
granted to each of the Named Executive Officers of the Company in 1996 and the
potential value of such grants at stock price appreciation rates of 0%, 5% and
10%, compounded annually over the maximum ten-year term of the options. The 5%
and 10% rates of appreciation are required to be disclosed by the rules of the
Securities and Exchange Commission and are not intended to forecast possible
future actual appreciation in the Company's stock prices.
- -------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
- --------------------------------------------------------------------------------------------------------
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM ($)/1/
- ----------------------------------------------------------------- --------------------------------------
(A) (B) (C) (D) (E) (F) (G)
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION 0% 5% 10%
NAME/GROUP GRANTED (#)/2/ YEAR ($/SH) DATE APPRECIATION APPRECIATION APPRECIATION
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
M. de Rosen 30,000 2.58 64.00 02/24/06 -0- 1,207,500 3,060,000
T.G. Rothwell 16,358 1.40 64.00 02/24/06 -0- 658,409 1,668,516
10,000 .86 63.875 02/28/06 -0- 401,750 1,018,050
M.E. Karobath 14,133 1.21 64.00 02/24/06 -0- 568,853 1,441,566
P. Langlois 11,320 .97 64.00 02/24/06 -0- 455,630 1,154,640
10,000 .86 63.875 02/28/06 -0- 401,750 1,018,050
R. Forrest 8,675 .74 64.00 02/24/06 -0- 349,168 884,850
</TABLE>
- --------
/1/ "Potential Realizable Value" has been calculated assuming an aggregate ten-
year appreciation of the market value of the Company's common stock at
annual compounded rates of 5% and 10%, respectively (or aggregate ten-year
appreciation of approximately 63% and 159%, respectively, to stock prices of
$104.25 and $166.00 per share, respectively, for options bearing an exercise
price of $64 and an aggregate ten-year appreciation of 63% and 159%
respectively to stock prices of $104.05 and $165.68 per share, respectively,
for options bearing an option price of $63.875). There can be no assurance
that the market value of the Company's common stock will appreciate in the
assumed manner. The column reflecting no appreciation is included for
illustrative purposes only; the market value of the Company's common stock
on March 14, 1997 was $75.875 per share.
/2/ Options granted in 1996 become exercisable during continued employment at
the rate of one-third of the total grant on each of the first three
anniversaries of the date of grant and remain exercisable during continued
employment until ten years after date of grant, except for special grants of
10,000 shares each to Mr. Rothwell and Mr. Langlois which became exercisable
as to half immediately upon grant and as to half on 12/31/96 upon the
attainment of certain business objectives in 1996.
16
<PAGE>
AGGREGATED STOCK OPTION EXERCISED IN 1996 & STOCK OPTION VALUES AT DECEMBER
31, 1996
The following table provides information as to stock options exercised by
any of the Named Executive Officers in 1996 and the value, on December 31,
1996, of the remaining stock options held by each of the Named Executive
Officers, calculated by using the closing price ($78.125) of the Company's
Shares on December 31, 1996.
- -------------------------------------------------------------------------------
AGGREGATED OPTIONS/SAR EXERCISES IN 1996 & 1996 YEAR-END OPTION/SAR VALUES
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
(A) (B) (C) (D) (E)
VALUE OF UNEXERCISED,
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT FY-END (#) FY-END ($)/1/
SHARES ACQUIRED VALUE ------------------------------ -------------------------
NAME ON EXERCISE (#) REALIZED (4) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
M. de Rosen -0- -0- 85,454 47,728 2,171,533 1,156,430
T.G. Rothwell 3,750 131,344 10,250 24,358 152,343 546,056
M.E. Karobath -0- -0- 112,919 45,522 2,974,753 1,350,018
P. Langlois -0- -0- 125,212 26,863 3,730,995 780,286
R. Forrest -0- -0- 60,432 18,886 1,688,593 530,102
</TABLE>
- --------
/1/ Calculated on the difference between the December 31, 1996 market value of
$78.1250 and the option price.
PENSION PLAN
The following table shows the estimated annual benefits payable to certain
of the Named Executive Officers of the Company upon retirement, in specified
remuneration classes and years of credited service, under the Pension Plan of
Rhone-Poulenc Rorer Inc. (the "Pension Plan").
PENSION PLAN TABLE
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
-----------------------------------------------------------------------
FINAL AVERAGE
ANNUAL
COMPENSATION 10 15 20 25 30 35
- ------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
$300,000 25,483 38,225 50,967 63,708 76,450 80,200
$350,000 25,483 38,225 50,967 63,708 76,450 80,200
$400,000 25,483 38,225 50,967 63,708 76,450 80,200
$450,000 25,483 38,225 50,967 63,708 76,450 80,200
$500,000 25,483 38,225 50,967 63,708 76,450 80,200
$550,000 25,483 38,225 50,967 63,708 76,450 80,200
$600,000 25,483 38,225 50,967 63,708 76,450 80,200
$650,000 25,483 38,225 50,967 63,708 76,450 80,200
</TABLE>
The Pension Plan covers substantially all of the salaried employees of the
Company and most of its United States subsidiaries. Annual retirement benefits
under the Pension Plan are based upon age, credited service and final average
compensation calculated on the basis of the participant's highest consecutive
five years of base salary (not including any bonuses earned or paid) earned in
the last ten consecutive years of employment. The Pension Plan is indirectly
integrated with Social Security
17
<PAGE>
and provides benefits which vary according to salary level, subject to a
$150,000 limitation (as indexed) on eligible compensation. The Company's
contribution to the Pension Plan in 1996 represented approximately 4.3% of the
aggregate base annual compensation of all Pension Plan participants as of
January 1, 1996. The years of credited service for the Named Executive Officers
who participate in the Pension Plan are: Dr. Karobath, 4 years; Mr. Rothwell, 2
years.
The compensation as specified in the table above includes salary as reported
in the Summary Compensation Table on page 13.
Mr. de Rosen and Mr. Langlois participate in a legally-required retirement
plan provided through RP for the benefit of substantially all employees, in
France, of RP and the Company and their respective subsidiaries. The plan is
mandated by French law and involves both employer and employee contributions.
Plan assets are held and managed independently of the employer. The basis for
calculation of the retirement benefit is capped by law at an annual
compensation level equivalent to approximately $250,000.
Mr. Forrest participates in a retirement plan provided through the Company's
Italian subsidiary for the employees of that company. The plan is mandated by
Italian law and involves both employer and employee contributions. Plan assets
are held and managed independently of the employer. The basis for calculation
of the retirement benefit is capped by law at an annual compensation level
equivalent to approximately $115,000.
Agreements with Certain Executive Officers. Rothwell Employment Agreement. In
connection with his employment by the Company in 1995, the Company agreed to
provide Mr. Rothwell, in addition to payments reported in the Summary
Compensation Table on page 13, accelerated service credit, for purposes-of
calculating retirement benefits, of two years for each year worked, provided he
is employed by the Company for a minimum of five years.
Change of Control Agreements. Each of the Named Executive Officers has an
agreement with the Company which provides for the payment to the executive of
certain compensation in the event that the executives employment with the
Company is terminated, either by the Company for other than Cause, or by the
executive for Good Reason, within 18 months following a "Change of Control", as
a cushion against the financial and career impact on the executive of any such
Change of Control.
For purposes of the agreements, a Change of Control means, generally, that
(1) any person, other than the Company or RP, becomes the beneficial owner of
more than 50% of the value of the outstanding equity or voting power of RP's
voting securities or the fair market value of the assets of RP, or (2) at such
time as RP no longer owns more than 50% of the outstanding equity or combined
voting power of the voting securities of the Company, any person becomes the
beneficial owner of more than 50% (if acquired from RP) or 30% or more (if not
acquired from RP nor in a transaction initiated by the Company) of (i) the value
of the outstanding equity or combined voting power of the outstanding securities
of the Company or (ii) the fair market value of the assets of the Company.
"Cause" means misappropriation of funds, habitual substance abuse,
conviction of a crime involving moral turpitude or gross negligence in the
performance of duties having a material adverse effect on the business or
financial condition of the Company.
"Good Reason" means any failure of the Company to comply with the terms of
the agreement; involuntary reduction of authority, duties, responsibilities or
compensation; or relocation of the executive without his consent by 50 miles or
more.
18
<PAGE>
The compensation payable to a Named Executive Officer upon termination by
the Company for other than Cause or by the executive for Good Reason ranges from
21 months to 36 months ("Payment Period") of base salary and target bonus and
continuation of health benefits. In addition, all stock options and Capital
Plan awards shall vest and become nonforfeitable and the Company shall make a
cash payment to the executive equal to the present value of the amount by which
the executives pension benefit would have increased if the Payment Period had
been counted as service under the applicable pension plan.
Each agreement has a term of two years and is thereafter to be renewed for
successive one-year periods only if approved annually by the Executive
Compensation and Personnel Committee.
Certain Relationships and Related Transactions.
Since the combination of the Company and the Human Pharmaceutical Business
of RP in 1990, RP and the Company have continued to provide services and to sell
products to each other. In 1996, sales by the Company to RP and its affiliates
amounted to $31.3 million. The Company purchased materials in 1996 from RP and
its affiliates at a cost of $38.7 million.
A subsidiary of RP provides services to the Company in certain areas,
including general administration, finance, human relations, information services
and communications. RP and the Company, acting through their respective
subsidiaries, have also entered into two research contracts pursuant to which RP
provides the Company with access to research results likely to be applicable in
the field of human pharmaceutical. The amount of annual fees paid to RP in 1996
pursuant to such arrangements was approximately $24 million.
As of December 31, 1996, RP had loans outstanding to the Company of $259.8
million. In 1996, the maximum principal amount of such loans was approximately
$838 million and net interest accruals in 1996 for such loans amounted to $22.3
million. RP has guaranteed certain debt obligations of the Company and certain
of its subsidiaries and received fees in consideration therefor of approximately
$86,687 for 1996. As of December 31, 1996, the aggregate principal amount of
loans so guaranteed was $57 million.
In December 1995, the Company issued $500 million of undated capital equity
notes to RP. The notes have a liquidation preference that ranks senior to all
Company common stock, but junior to all existing and future Company preferred
stock. Semiannual remuneration on the unpaid principal balance of the equity
notes is based on a floating rate. The capital equity notes are redeemable only
at the Company's option, but not earlier than five years after issuance, subject
to certain exceptions.
Pursuant to an agreement reached with respect to activities in 1996, and
consistent with agreements in previous years, RP paid fees totaling $40,000 for
consulting services rendered to RP by Patrick Langlois, Senior Vice President
and Chief Financial Officer. The Company believes that, although these services
are essentially incidental to the performance of Mr. Langlois' ordinary duties
and do not present a conflict of interest, it should be compensated for making
its executives available and thus reduced Mr. Langlois compensation by the
amount of fees received.
19
<PAGE>
<PAGE>
Exhibit (c)(3)
--------------
July 2, 1997
Mr. James S. Riepe
Vice Chairman
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, Maryland 21202
Mr. Dale F. Frey
The Michael Allen Company
One Gorham Island
Westport, Connecticut 06880
Eric J. Topol, M.D.
The Cleveland Clinic Foundation
Department of Cardiology, #F25
9500 Euclid Avenue
Cleveland, Ohio 44195
Gentlemen:
In connection with the anticipated proposal (the "Proposal") by Rhone-
Poulenc S.A. ("RP") to acquire all of the publicly held shares of Common Stock
of Rhone-Poulenc Rorer Inc., a Pennsylvania corporation ("RPR"), we hereby agree
to indemnify and hold harmless, to the fullest extent permitted by applicable
law, the members of the Special Committee of the Board of Directors of RPR (the
"Special Committee") (collectively, the "indemnified persons") from and against
all losses, claims, damages, liabilities, expenses (including reasonable fees
and disbursements of counsel), judgments, fines and costs (including amounts
paid in settlement) incurred by them (A) which are related to or arise out of
(i) actions taken or omitted to be taken (including any untrue statements made
or any statements omitted to be made) by us or any of our affiliates, including
RP, in connection with or in anticipation of the Proposal, the acquisition
contemplated by the Proposal (the "Acquisition") or any related transaction or
(ii) actions taken or omitted to be taken by an indemnified person in connection
with the Proposal or the consummation of the Acquisition or any related
transaction, (B) which are otherwise related to or arise out of the Proposal or
the Acquisition or any related transaction or (C) by reason of the fact that an
indemnified person is or was a member of the Special Committee, and we will
reimburse each indemnified person for all expenses (including reasonable
fees and disbursements of counsel) as they are incurred by such
indemnified person in connection with investigating, preparing or defending any
action, suit, proceeding, investigation or claim, whether or not there is
pending or threatened litigation in which any indemnified person is a party;
provided, however, that the foregoing agreement to indemnify and hold harmless
- -------- -------
shall not apply to any such loss, claim, damage, liability, expense, judgment,
fine or cost (collectively a "loss") to the extent
<PAGE>
it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) to have resulted primarily and directly from the self
dealing, willful misconduct or recklessness of the indemnified person seeking
indemnification (an "Excluded Loss"); and provided, further, if we have
-------- -------
reimbursed an indemnified person for expenses as provided above for any loss and
such loss is determined to be an Excluded Loss, such indemnified person shall
repay to us all amounts so reimbursed.
Promptly after receipt by an indemnified person of notice of any complaint
or the commencement of any action, suit, proceeding, investigation or claim with
respect to which indemnification is being sought hereunder, such person shall
notify us of such complaint or of the commencement of such action, suit,
proceeding, investigation or claim (unless we are also a party thereto, in which
event such notice shall not be necessary), but failure so to notify us will not
relieve us from any liability which we may have hereunder except to the extent
we are actually prejudiced by such failure. If we elect or are requested by the
indemnified person, we will assume the defense of such action or proceeding,
including the employment of counsel reasonably satisfactory to the indemnified
person and the payment of reasonable fees and disbursements of such counsel, and
the indemnified person will use its best efforts to assist in the vigorous
defense of any such matter. In the event such indemnified person reasonably
determines that having common counsel would present such counsel with a conflict
of interest or if we fail to assume the defense of the action or proceeding in a
timely manner, then such indemnified person may employ separate counsel to
represent or defend such person in any such action or proceeding and we will pay
the reasonable fees and disbursements of such counsel as promptly as statements
therefor are received and other costs and expenses for which indemnification is
available hereunder promptly after they are incurred and will use our best
efforts to assist in the vigorous defense of such matter; provided, however, we
-------- -------
shall not be obligated to pay the fees and disbursements of more than one such
counsel for all indemnified persons in any jurisdiction in any single action or
proceeding (or related group of actions or proceedings).
We hereby further agree that, should the Acquisition occur, all rights to
indemnification existing in favor of the members of the Special Committee in
their capacity as directors of RPR or any of its subsidiaries as provided in
RPR's Amended and Restated Articles of incorporation or Bylaws (or similar
organizational documents) or the certificate or articles of incorporation or by-
laws (or similar organizational documents) of any of RPR's subsidiaries as in
effect as of the date hereof shall survive the Acquisition and shall continue in
full force and effect for a period of not less than six years from the date
hereof. Unless all existing and potential claims relating to the Proposal, the
Acquisition or related transactions (collectively, "Claims") are covered by an
existing "claims made" policy pursuant to which notification of the Claims has
been duly and timely made, (1) until withdrawal of the Proposal or consummation
of the Acquisition or a similar transaction and for a period of at least six
years thereafter, we shall maintain or cause to be maintained in effect the
current policies of directors' liability insurance maintained by us with respect
to matters occurring prior to withdrawal of the Proposal or completion of the
2
<PAGE>
Acquisition (the "Current Policies") and (2) in the event that any Claims are
asserted or made while the Current Policies are in effect, which Claims are
covered by the Current Policies, the Current Policies shall be continued in
respect of any such Claims until final disposition of any and all such Claims;
provided, however, that (a) the obligation set forth in clause (1) above shall
- -------- -------
apply only to the extent that the Current Policies are available during such
six-year period and (b) we may substitute for the Current Policies other
policies (the "New Policies") providing for at least the same coverage as, and
containing terms and conditions no less advantageous to the insured persons
covered thereby (which shall, if possible, include the indemnified persons) than
those contained in, the Current Policies, except that to the extent that the
annual cost of the New Policies exceeds the annual premium paid by RPR in
respect of the current annual policy period of the Current Policies (the "Annual
Premium") we shall be required to maintain only so much coverage for the insured
persons covered thereby (which shall, if possible, include the indemnified
persons) as may then be obtained for the Annual Premium.
We hereby further agree that, except with respect to an Excluded Loss,
neither we nor any of our affiliates will initiate any action or claim against,
or otherwise seek any recovery from, any indemnified person for any matter for
which indemnification would be available under this Letter Agreement and that no
indemnified person will directly or indirectly incur any liability whatsoever to
us or any of our affiliates (in the capacity of a stockholder of RPR or
otherwise) as a result of the Proposal, the Acquisition, service on the Special
Committee or any related matter.
Our obligations under this Letter Agreement shall be in addition to any
rights that any indemnified person may have under the Amended and Restated
Articles of Incorporation or Bylaws of RPR, the laws of the Commonwealth of
Pennsylvania, at common law or otherwise.
We acknowledge that in indemnifying the members of the Special Committee
pursuant to, and entering into the other obligations contained in, this Letter
Agreement, we do not intend to compromise the independence of the Special
Committee but rather to create conditions where members of the Special Committee
can review the Proposal fully and independently without undue concern for
possible liabilities that may be alleged to exist as a result of their actions.
Very truly yours,
RHONE-POULENC RORER INC.
By: __________________________________
Name:
Title:
3
